Why Investment Objectivity Matters When Choosing a Retirement Plan Provider
Investment selection for your company's retirement plan is about making strategic decisions that impact your employees' financial futures. How do you ensure you're choosing a provider that serves your participants' best interests?
As a retirement plan sponsor, you're tasked with making important decisions that will directly affect your employees' retirement security. This responsibility requires a strategic, objective approach to investment selection and plan management, putting participant outcomes at the center of every decision.
Building a foundation for retirement plan success
Retirement benefits help every business attract, hire and retain the right employees. When evaluating retirement plan options — and providers — your goal is to ask yourself the right questions and make choices that best serve the interests of your plan participants:
Q. Is the plan provider and its asset managers aligned with the goals and objectives of your specific plan and its participants?
A. This relationship should feel collaborative, not transactional. You want to work with professionals who prioritize your plan and its participants' success over their own bottom line.
Q. How many investment choices are available to your plan participants?
A. Participants benefit from having a wide range of investment options — mutual funds, bond funds or stable value funds, for example — to diversify their portfolios and adjust risk levels based on their age, income and retirement timeline. Plus, low-fee investment options help their contributions grow faster over time. Be mindful of offering too many choices, as an overwhelming number of options can lead to decision paralysis and reduced participation.
Q. Why is investment objectivity so important?
A. Plan providers such as banks and insurance companies often favor their own investment products, which may limit your employees' ability to select funds from a diverse investment line-up to help maximize long-term growth.
Q. Do they help to decrease your fiduciary risk or put you in a position of greater risk?
A. Understanding how your provider's services impact your legal responsibilities as a plan sponsor is crucial for long-term plan success and your peace of mind as a fiduciary.
Q. Are your participants getting the best value when it comes to fees?
A. This question applies to several aspects in a retirement plan and should inform every decision, from initial provider selection to ongoing plan reviews, as fees can change participant retirement outcomes. Understanding fees is always important as a plan sponsor.
The hidden cost of investment decisions
When providers offer a broad range of investment choices while maintaining transparency, they demonstrate respect for fiduciary responsibilities while prioritizing participant success. However, it's important to balance choice and cost consciousness because higher fees may quickly chip away at decades of diligent saving.
Here's a mutual fund example: A 30-year-old employee with $25,000 in their 401(k) contributes $250 monthly until retirement. With 7% returns and 1.15% expense ratio, they'll have about $526,857 at retirement.
But look at what happens when you add just 0.5% more in expense ratio.
The employee's account balance drops to $469,089 — that's nearly $58,000, or over two years of contributions lost to fees.
Look for providers offering low-fee investment options and transparent disclosure reports. Remember, fee transparency should be an expectation.
Expanding possibilities through smart partnerships
With ADP® Retirement Services, your plan has access to thousands of investment choices from over 130 leading investment managers. These options provide your plan participants with a smart strategy for investing long-term for retirement. The combination of choice and guidance ensures that investment objectivity helps drive retirement readiness for your employees.
Plus, we make plan sponsors' lives easier by embedding your retirement plan and your payroll. The flow of data between payroll and retirement systems happens automatically, cutting down on repetitive tasks and the chance for errors.
To learn more, reach out to an ADP retirement services specialist or call (800) 432-401K.
All investments involve risk, including loss of principal, and there is no guarantee of profits. Investors should carefully consider their objectives, risk tolerance, and time horizon before investing. There is no assurance that any fund will meet its stated objective.
Investment options are available through the applicable entity(ies) for each retirement product. Investment options in the "ADP Direct Products" are available through either ADP Broker-Dealer, Inc. (ADP BD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 or (in the case of certain investments) ADP, Inc.
An expense ratio is a fund's annual operating expenses expressed as a percentage of average net assets and includes management fees, administrative fees, and any marketing and distribution fees. Expense ratios directly reduce returns to investors. The expense ratio typically includes the following types of fees: accounting, administrator, advisor, auditor, board of directors, custodial, distribution (12b-1), legal, organizational, professional, registration, shareholder reporting, sub-advisor, and transfer agency. The expense ratio does not reflect the fund's brokerage costs or any investor sales charges.
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.
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