How 401k Squared Works

Best practices we follow in 401k management to ensure proper fiduciary responsibility...

Our suite of 401k management services allows us to compete not based on price, but on value.

These management services are offered well beyond the initial sale. You pay advisory fees year in and year out, so what are you getting for your money?

Best Practice 1: Open Architecture

We prefer to only bid vendors with an open architecture platform where there are no proprietary fund restrictions. For example, if your 401k is with Wells Fargo, you would be required to have a large percentage of your investment options with Wells Fargo’s own funds.

On an open platform, we can select from most any fund family, whether it is Fidelity, Janus, Aim, Oppenheimer, etc. Our only criterion is fund performance. Why would you want a fund that is not the best one in its category in your 401k plan?

Being a fee-based firm, our compensation stays the same no matter which funds we choose. Therefore we want to provide you with the best performing funds possible.

Best Practice 2: Hands On, Hands Off Investment Management

Your workforce is most likely comprised of investors who fall into one of three categories: 

1. Those who understand the stock market and are comfortable picking their own funds and managing their account.
2. Those who know a little bit about investing but would still like some guidance, and…
3. Those who don’t know the difference between the Daytona 500 and the S&P 500.

You, as the plan sponsor, are faced with the challenge of offering a retirement plan that can be “all things to all people.”

401k Squared creates plans that suit the needs of your diverse personnel.

For those participants that are comfortable making their own decisions and want to be “hands on” with their money, we provide top-ranked funds in each category along with some specialty funds for them to choose among.

For those who may be “middle of the road” and do not want to choose their funds but would like a portfolio based on either their age of retirement or their risk tolerance, we offer Life Style and Life Cycle Funds. Examples would be the Fidelity 2020 or 2030 funds or the Manning and Napier Moderate Aggressive fund.

“Employees should be offered one additional choice on their menu of 401k investments; the option not to manage their plan themselves.” ~ Fred Reish, ERISA Attorney

If you, like most plan sponsors, have employees who don’t understand what a stock, bond, or mutual fund is, we offer Third-Party Money Management. This option allows them to be completely “hands off” with their money.

Employees as a whole lack the time, knowledge and inclination to manage their 401k portfolio. This is illustrated by the fact that over the last 20 years, the S&P 500 has returned 12.98 percent while the average plan participant has had returns of just 3.51 percent.

Employees can authorize a third-party manager to actively manage their account for them. The employee simply fills out an application and risk profile and the designated manager trades the account based on that person’s risk tolerance and time horizon.

We have over 60 percent of our plan participants taking advantage of this service.

Best Practice 3: Employee Education

Employee education is a vital component to the success of your company’s retirement plan. With this in mind, we offer regular workshops and seminars for your employees at no additional cost to you.

You will receive a customized education program that addresses the plan’s specific objectives, the employee demographics, and the unique provisions of the plan. These seminars are done on-site at the company at your convenience. Generally, we have workshops once every six months or even once a quarter, depending on your needs and availability.

Best Practice 4: Participant Gap Analysis & TRAK® Reports — a "firewall" regarding your fiduciary responsibility and liability

Every two years, each participant in your 401k plan will automatically receive a Gap Analysis. This report takes into account how much the employee is making, how much they are saving, what you as the employer may be contributing, their current account balance, their normal age of retirement, and how their money is allocated.

All of these factors combine to let the participant know whether or not they are on track to retire with adequate savings, as illustrated by a gas gauge. A gauge that appears full or close to full symbolizes the employee is on track to retire comfortably while an empty gauge lets them know there are shortfalls in their planning.

If there appears to be a shortfall, the analysis will tell them what they need to do to close their Gap. Whether they need to start saving more, work a few years longer, or possibly plan to spend less money during retirement, the report will show them the probability of success by implementing one or a combination of these changes.

While the Gap Analysis is automatically run every two years, it only takes into account the participant’s employer-sponsored 401k account. What if your employees have a spouse who has a retirement plan or if they have IRAs or Roth IRAs and they want to see their retirement projection using all of their assets? A TRAK® Report will look at their retirement picture from a global perspective.

Your employees have the opportunity to sign up at the enrollment meeting to have a TRAK Report run for them. Advisors from 401k Squared meet individually with each participant and sit down with them for approximately 45 minutes and complete the analysis. TRAK is an interactive program that gives them a comprehensive look at their retirement picture taking into account all of their assets. If there is a shortfall, they again have the option to save more, work longer, or live on less money in retirement. Because the program is interactive, we can move those three variables around to get them to a level that there are no deficits.

The Gap Analysis and TRAK Report serve as not only education for your employees, but also as a “firewall” for you regarding your fiduciary responsibility and liability. Because these reports let your employees know today whether or not they are on track for retirement, it prevents one of them from placing blame on your company, stating that they were never told they “weren’t going to make it.” You, as the plan sponsor, will receive copies of the Gap Analyses each time they are run as well as a listing of those employees who opted to have a TRAK Report run for them.

The goal of 401k Squared is to reach out to your employees today, instead of when they get close to retiring, to either get them on the right track or keep them on the right track.

Best Practice 5: Participant Outcomes Report for Plan Sponsor — another important "firewall" regarding your fiduciary responsibility

You will receive a diagnostic report that summarizes all of the GAP Analysis reports that were run for your participants. This report looks at who is using the plan and how it is being used at the aggregate level. In doing so, it identifies potential concerns. Specifically, the analysis measures the plan in relation to industry recognized determinants of retirement adequacy across a meaningful demographic segmentation of the participant population. These determinants include: Early participation, high contribution levels and adequate investment diversification.

If there are areas of concern, such as employees owning only one fund or too much money is in cash given their age, you know that our next educational seminar may need to be centered around diversification or assessing risk tolerance.

As with the participant reports mentioned above, this plan sponsor report acts as part of your “firewall” against potential problems and/or lawsuits in the future regarding your fiduciary responsibility and duty to the 401k plan.

Best Practice 6: Satisfaction Survey — yet another fiduciary responsibility "firewall"

Under the Pension Protection Act of 2006, plan fiduciaries are required to operate a “successful plan”. One of the best ways to measure how well the plan is functioning is through satisfaction surveys given to plan participants. They simply log into a secure website and answer a few brief questions about the plan. Their responses give you a convenient way to gauge the employees’ thoughts and feelings about the plan as well as retirement saving in general. Because the survey is done anonymously, employees can feel comfortable expressing their true opinions about the plan.

The survey acts as yet another "firewall" for the fiduciaries of the plan. These surveys can show you any discontent that may be currently under the surface, which we can address before they become real issues.

Best Practice 7: Fiduciary Notebook

There are various documents associated with a 401k plan, including the Summary Plan Description, Investment Policy Statement, Administrative Documents, Quarterly Reports, and Annual Fiduciary Review Reports. We provide the plan sponsor with a notebook to organize those documents and keep them in one place.

The table of contents has been designed off of an actual Department of Labor audit so that you have the bulk of the documents together that may be requested if an inspection ever occurs.

Ready to get started? 401k Squared comes to employers because we know our clients are busy building their businesses.

We work around your schedule, meeting at a time that is best for you.

The first step in working with 401k Squared is to schedule an initial meeting that lasts approximately 45 minutes to an hour. During the meeting, our goal is to learn what you are in need of, what is and what is not working with your retirement plan, and how we can help you get to where you want to be.

The initial meeting is simply a fact finding consultation after which you decide if you want to have us complete a benchmark and fund analysis of your plan.

During the benchmark and fund analysis, we will look for any red flags and determine whether there is room for improvement in your plan. If there is no room for improvement, we would not go any further. If there is room for improvement, we will tell you exactly how we can help you.

Every company should benchmark their plan every two to three years regardless of whether there are any changes made to the plan. We take care of that service for you if you so choose, generally free of charge. If you opt to have us to do the benchmark, we will meet with you again for approximately two hours to review the benchmark, the fund analysis, and our findings.

Let us get you and your employees on the right track for retirement, call 303-797-1401 or email us today!