So, what is a plan health assessment?

In short, a plan health assessment is a diagnostic analysis of your firm's 401(k) plan "health." It includes both operational (e.g., documentation, plan objectives, fee due diligence) and functional (e.g., healthy participation and savings rates, plan design, communication effectiveness) aspects. A plan health assessment can be as simple as running through a checklist, but there are tools available if you're looking for something more in depth. (Ask your retirement plan advisor for recommendations.) 

For those of you getting ready to conduct your inaugural plan health assessment, here's the good news: By doing so, you will be taking the pivotal first step of establishing a baseline diagnosis for future assessments. To help you get started, here are some key steps to consider.

Lift the hood on plan design. Plan design is the heartbeat of your plan-definitely not a "set it and forget it" function. Over time, the objectives of your firm, employee needs, demographics, and populations may shift, rendering an outdated plan design less effective. To assess whether your plan design is meeting the needs of participants, ask yourself these important questions:

• Auto-deferrals and auto-escalation. Does your plan use auto-deferrals or an auto-escalation feature? According to a 2016 survey, 57.5 percent of plans offer an automatic-enrollment feature, and more than half of those plans use a default deferral rate of more than 3 percent. 
• Matching allocation formula. Is the matching allocation formula incentivizing employees to save for retirement? Does it give business owners and key employees the ability to maximize their own contributions?
• Eligibility standards. Are eligibility standards conducive to the ages and job statuses (such as full-time versus part-time) of your workforce?

• QDIA and TDF analysis. Has the qualified default investment alternative (QDIA) and target-date fund (TDF) suite undergone an objective analyzation process? Have your plan's employee demographics been considered in order to select the most appropriate QDIA and TDF investments?
• Benchmark investment options. Have your plan's investment options been benchmarked for reasonable cost and performance in the past 12 months?
• Reenrollments. Could your employees benefit from reenrollment? You're probably aware that reenrollment is a process where plan participants are given the opportunity to reselect their investment options. But what you may not know is that case studies have shown reenrollment to be an effective method for plan participants to reallocate their investments to professionally managed TDFs or the plan's QDIA, thus removing the guesswork for DIY investors who may otherwise choose an inappropriate investment allocation mix.

• Participation and savings rates. Compare the plan's participation and savings rates with those of the prior year, as healthy plans experience year-over-year improvement. Here, you'll want to cover the crucial indicators that the retirement plan is serving its purpose:
  - Are more employees choosing to participate in the plan?
  - Have employees elected to defer more from their paychecks than they did last year?
  - Have average balances increased?
  - Have hardship withdrawal and loan requests decreased?
• Education. Most of your employees will rely on you (and, by extension, your plan advisor) to provide them with relevant, engaging retirement plan education. If participation or deferral rates are down or flat compared with rates of prior years, a retirement education strategy tune-up might be in order.
  - Have you put your educational efforts under the microscope?
  - Are they hitting the mark?

• The Investment Policy Statement (IPS). The IPS is the blueprint for the way plan assets are invested. It establishes guidelines for the selection, monitoring, and replacement of investments. Be sure that your plan has an IPS and that the terms have been followed.
• Documentation. Ensure that all plan-related decisions-including investment choices, distribution authorizations, service provider due diligence, and more-were documented. Further, this documentation should be stored (either virtually or in hard copy) in a centralized location that can be accessed at a moment's notice.
• Plan terms. The terms of the plan document are, in essence, the schematics for the way the plan is administered. As part of plan governance, you should assess whether these terms have been rigorously adhered to.