Maximizing 401(k) Success: A Fiduciary’s Guide to ROI

For many business owners, offering a 401(k) plan is a way to attract and retain talent. But it’s more than just a benefit, it’s a fiduciary responsibility. And like any investment in your business, your 401(k) plan should deliver a return. This blog breaks down the key levers of retirement success, fiduciary duties, and how to calculate and improve your plan’s ROI.

The Levers That Drive Retirement Outcome

A successful 401(k) plan doesn’t happen by accident. It’s shaped by a few critical levers:

• Investment Returns: Over time, compounding magnifies the impact of returns. Even small improvements can significantly boost retirement outcomes.
• 401(k) Fees: Every dollar paid in fees is a dollar not compounding for your employees. Lower fees mean more money working for them.
• Savings Rates: Encouraging higher employee contributions, through education, employer matching, or an auto-escalation feature, can dramatically improve outcomes.
• Plan Design: Features like auto-enrollment, employer matching, and targeted education can increase participation and savings rates.

As a plan sponsor, you have the ability and responsibility to influence each of these levers.

Fiduciary Responsibilities of a 401(k) Plan Sponsor

Under ERISA (the Employee Retirement Income Security Act), if you make decisions for your company’s 401(k) plan, you are a fiduciary. That means you’re legally obligated to act in the best interests of your plan participants.

Two key duties stand out:

• Duty of Prudence: Make informed decisions not just based on cost, but on the value received for the fees paid.
• Duty to Monitor: Regularly review your plan’s investments, fees, and service providers, including your advisor. Best practice is to do this at least every three years.

Measuring the ROI of Your 401(k)

Just like any business investment, your 401(k) plan should be evaluated on its return. The ROI of your plan reflects how well it serves your employees. High fees or poor investment performance can erode retirement savings.

A simple way to calculate this is: Plan ROI = (Average Investment Return) / (Total Plan Fees)

Let’s say your plan earns a 7% return and total fees are 1%. That’s a 7x ROI, a strong signal that your plan is delivering value. But if fees creep up or returns lag, that ROI shrinks, and so does your employees’ retirement potential.

How to Evaluate and Improve Your Plan

Improving your plan’s ROI starts with transparency and benchmarking:

1. Gather the Data
   • Annual investment performance reports
   • Fee disclosures (408(b)(2) and 404(a)(5))
   • Benchmarking reports
2. Analyze ROI
   • Use tools like the Fisher\SMB™ Investment Scorecard to compare your plan’s ROI to industry benchmarks. This helps identify underperforming funds or overpriced services.
3. Take Action
   • Shop your plan. Whether it’s with Fisher\SMB or another provider, a fresh look can uncover opportunities to reduce fees, improve investment options, and enhance participant outcomes.

Tools to Help You Get There

Fisher\SMB offers a suite of tools designed to help plan sponsors like you make informed, fiduciary-sound decisions:

• Investment Scorecard
• ROI Analysis
• Fee Analysis
• ROI Calculator
• Fiduciary Checklist

Comparing your plan’s ROI to industry benchmarks is the first step in understanding how well it’s serving your employees. But identifying underperforming funds or hidden, overpriced services requires a deeper dive. That’s where plan shopping comes in, whether with Fisher\SMB or another provider, it’s about making sure your plan is working as hard as your people are.

Let’s Talk

We’re here to help you and your employees navigate the complexities of 401(k) plans and investing for retirement. Contact us to talk about what your business needs.