Capital Ideas

Investment insights from Capital Group

Plan Design
How to conduct an effective plan review in 2021
Tom Charon
Retirement Plan Counselor
  • Financial professionals can help sponsors review plan fees, service and menus
  • Look for ways to boost participation engagement to grow plan assets
  • Consider organizing and simplifying investment menus within three tiers

For plan sponsors, 2020 was all about getting through the chaos. Now, in 2021, normalcy is seemingly within reach. At the same time, legislation like the Setting Every Community Up for Retirement (SECURE) Act is starting to take effect, which could spur plans to make changes in areas ranging from auto-escalation to investment menu options.

That means the start of 2021 can be a great time for financial professionals to help plan sponsors conduct plan reviews. Three areas of focus in particular can help sponsors build more resilient plans and fulfill their fiduciary duties:

  • Fees
  • Service provided to participants
  • Investment menus

Know what you’re getting with fees

Fees have taken on more and more importance over the years, in terms of plan sponsors fulfilling their fiduciary duties, trying to improve participant outcomes and reducing operational costs.

Financial professionals can add value to plan sponsors by breaking down the various costs of working with service providers such as:

  • Recordkeepers
  • Plan administrators
  • Investment managers

Plan sponsors do not have to use the lowest-cost providers. However, they (or their fiduciaries) have a legal responsibility to determine whether those fees are reasonable.

Financial professionals can bridge the gap by helping sponsors cost-compare their fees against other similar plans and providers. By benchmarking fees against comparable alternatives, financial professionals can help sponsors review the value they feel they are getting from each service provider.

Cost plays an increasingly important role in choice of recordkeeper


Percent of plan sponsors who said they’ve changed recordkeepers due to the overall cost to plans

Chart shows 14% of plan sponsors said they changed recordkeepers in 2015 due to overall cost to plan, 7% said so in 2017 and 25% did in 2019. Source: Deloitte, 2019 Defined Contribution Benchmarking Survey Report

Following a fee review, plan sponsors may then decide to:

  • Retain current service providers while monitoring any future cost increases
  • Adjust services with current providers (e.g., negotiating fee breaks based on growing assets) 
  • Switch to new service providers who seem to provide better value based on the fees charged

Improve service provided to plans and participants

Reviewing fees can help set participants up for success, but much still depends on the service that plan sponsors provide. If participants are not engaged with their retirement options, and if plan sponsors do not offer ways to easily participate, then overall plan health may suffer.

To improve the service that participants ultimately receive, financial professionals can provide their own services to plan sponsors, such as by helping them set up or review areas including:


Many plans auto-enroll employees into a default option like a target date series. Plans that have yet to do so can easily boost participation by adding auto-enrollment. But don’t stop there. Adding auto-escalation so that employee contributions eventually rise to around 12% of their paychecks (or a similar savings rate recommended by financial professionals) can both boost participant outcomes and help plans accumulate more assets to keep fees low. 

Investment re-enrollment

Given the uncertainty of 2020, some employees may have changed their investment strategies to more conservative approaches. Others may have never enrolled in age-appropriate funds in the first place, such as if they joined before a plan offered a target date series. An investment re-enrollment can reset participants’ allocations into an age-appropriate target date fund or whatever default investment alternative a plan chooses.

Participant communications

To keep employees engaged and on track for a successful retirement, sponsors may want to adjust how they communicate with participants about their defined contribution (DC) plan. Keep in mind participants’ preferences.

For example, 51% prefer to receive communications about their retirement plan in their personal emails, compared with only 26% who want to receive this information in their work emails, according to an Empower Institute study.1 Financial professionals may be able to help discover these preferences and understand the full picture of participants’ finances by conducting one-on-one meetings.

In addition to these areas, financial professionals may also be able to offer or suggest plan services that can help sponsors operate successful retirement plans, such as fiduciary services, open architecture, employee eligibility tracking, online loan and distribution management, and more.

Review plan menus to help participant engagement and outcomes

Another way to add value to plan reviews is to make sure plan investment menu options align with participant needs. Many plans have far more investment choices than participants actually use; the average is 20 options within 401(k)s, according to a BrightScope/Investment Company Institute (ICI) study.2 Such a large number can confuse or even paralyze participants.

Many plan sponsors may benefit from more broadly reviewing how they construct fund menus. One trend in the DC world has been to create three tiers within menus.

Tier 1 — Target date series

Target date series have become the norm, with around four out of five 401(k) plans offering them as of 2016, according to BrightScope/ICI. This year’s review should cover how well the target date series held up during the volatility of 2020. Financial professionals may be able to add value by helping plan sponsors compare target date providers. 

Although target date funds seem similar, they can have wide disparities in risk and returns based on factors like their underlying funds and whether they operate to or through retirement. Tools like Capital Group’s Target Date ProViewSM can be used to compare target date series based on Department of Labor guidance using Morningstar data.

Tier 2 — Individual funds

Many plans still have the bulk of their assets spread across individual mutual funds. Over three-quarters of 401(k) assets are outside of target date funds as of 2016, finds BrightScope/ICI.

Financial professionals can help plan sponsors narrow down their individual fund offerings to avoid overwhelming participants. Instead of offering multiple funds specific to each asset class and style (i.e., style-boxing), a plan can simplify its menu by offering broader funds, such as ones that invest across domestic equities, international equities and fixed income allocations.

Tier 3 — Income distribution options

Plan sponsors, especially those with older participants, may need to start thinking more about how participants will ultimately obtain income from their retirement savings. Doing so not only benefits employees but can also help plans keep costs low. If participants keep their money within plans long after they leave or retire from a company, plans can still receive the fee breaks that can come from having higher total assets.

Some of the ways to help participants receive income in retirement include making DC plans more closely resemble defined benefit (DB) plans when it comes to payouts. For example, managed payout funds are much more liquid than annuities but still aim to provide stable monthly income through an allocation to income-generating stocks and bonds.

Action steps

Plan reviews can be a valuable way for plan sponsors to align their retirement plans with their goals and fiduciary responsibilities. Financial professionals should meet with plan sponsors to conduct these reviews, where they will:

  1. Proactively review fees
  2. Evaluate plan design based on participant behavior
  3. Consider how legislation may affect retirement plans
  4. Analyze investment options following the volatility of 2020
  5. Think about rightsizing investment menus

Tom Charon is a retirement plan counselor with 31 years of investment industry experience (as of 12/31/2019). He holds a bachelor’s degree in business from the University of Wisconsin-Milwaukee.

1Empower Institute. “Boosting the effectiveness of retirement plan communications.” January 2019.
2Brightscope/ICI. “The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2016.” June 2019.


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