Why Regular 401(k) Benchmarking Matters
Think of your company’s 401(k) plan like a well-built home. Even when everything appears to be in good shape, regular checkups ensure it stays safe, efficient, and ready for whatever comes next. The same is true for retirement plans: nothing needs to be “wrong” for benchmarking to be essential. It is a proactive way to keep your plan compliant, cost‑effective, and aligned with participant needs.
Why Benchmarking Deserves Consistent Attention
At its core, 401(k) benchmarking compares your plan’s fees, features, investment lineup, and participant outcomes against industry standards. It’s a structured way to understand how your plan stacks up—and where it might fall short without obvious warning signs.
A growing trend in the industry is shifting from reviewing plans every three years to conducting annual reviews. The increase in fiduciary lawsuits and rapid market changes have made more frequent evaluations a key part of prudent oversight.
Keeping Fees Reasonable and Transparent
Unchecked fees can quietly drain retirement savings. For example, moving from a 1.5% fee to just 0.1% can result in hundreds of thousands more saved over a career. Benchmarking surfaces fee creep and helps eliminate unnecessary costs before they harm participant outcomes.
Evaluating Investments with Confidence
Regular reviews help identify which investment options are performing well and which may need to be replaced. Sometimes a plan holds onto outdated funds simply because no one has looked at them recently. Benchmarking opens the door to stronger alternatives that may improve long‑term results.
Understanding Participant Engagement
How well are your employees actually using the plan? Benchmarking looks beyond dollars and funds—it also assesses participation rates, deferrals, and overall preparedness for retirement. Low engagement or weak readiness metrics may signal opportunities for enhancements such as auto‑enrollment, Roth options, or escalation features.
Strengthening Fiduciary Compliance
Plan sponsors carry fiduciary responsibilities under ERISA, and documentation matters. Benchmarking provides a clear paper trail of due diligence, helping reduce liability and offering peace of mind that the plan is being managed responsibly.
Spotting Risks Before They Grow
Even well-run plans can experience silent problems like fee drift, outdated investment menus, or underperforming funds. One study found that 84% of retirement plans had at least one fiduciary issue—often tied to insufficient benchmarking. Treat this process like a routine audit that uncovers issues before they become costly or legally risky.
Driving Long-Term Plan Health and Business Value
Benchmarking isn’t just about avoiding problems—it’s about creating opportunities. Employers who make improvements such as auto‑enrollment have seen dramatic boosts in participation. Strong plans also support recruitment and retention, while weaker plans can contribute to delayed retirements that cost employers significantly each year.
By watching key performance indicators—like participation, deferral trends, and readiness scores—benchmarking helps maintain a plan that truly serves your workforce and keeps pace with broader benefits trends.
Annual benchmarking also makes the timing of full RFPs more strategic. Instead of running time‑consuming vendor reviews at random intervals, benchmarking helps you identify when an RFP is actually necessary.
Ultimately, proactive benchmarking ensures your plan stays aligned with your goals and your employees’ futures. It’s a steady, empowering way to stay ahead of problems rather than react to them. If you’re unsure where your plan currently stands, consider partnering with an expert to guide you through a thorough review.