When retirement account balances rise, people tend to feel good about their 401(k) plan. Participants are happier, the owner is happier, and fewer people ask questions. A rising market has a wonderful ability to make everyone involved look like they’re doing an excellent job.
Unfortunately, an account statement doesn’t tell you whether your plan is being administered correctly. Strong investment returns won’t reveal an excluded employee, an incorrect compensation definition, or a payroll election that never reached the payroll system. Those problems can exist while balances reach record highs.
Investment performance also doesn’t explain whether your providers deliver useful service. Does someone answer employee questions? Are administrative requests handled promptly? Do your providers explain problems clearly? A plan can offer successful investments while making every interaction unnecessarily difficult for the people using it.
Fees deserve attention during good markets, too. When assets increase, certain fees may increase with them. Sponsors should understand what the plan pays, which services those payments cover, and whether the arrangement remains reasonable. A larger account balance doesn’t answer any of those questions.
Your review should include administration, employee experience, provider performance, and investments. Ask about unresolved issues. Confirm that responsibilities are understood. Review whether the plan’s design still fits your workforce and business. Document the decisions you make and the information supporting them.
None of this requires treating every positive quarter as suspicious. Enjoy good returns. Just recognize that market performance can distract you from parts of the plan that require your attention regardless of what stocks did last month.
The real test is whether you have a sensible process for overseeing the whole arrangement. If your only measure of success is that your account increased, you’re letting the market grade work it never examined. That’s an easy report card to like and a dangerous one to trust.