Your 401(k), your way.

• Author: Flint, Kevin E.
• Position: Salary-reduction savings plan - Includes related article

Pleasing your 401(k) "customers" means marrying plan philosophy and goals with the right administrative procedures and vendors. To do that, start by asking a few simple questions, as Bausch & Lomb did.

Not too long ago, 401(k) plan administration was solely the province of the human resources department. Then along came 404(c), retirement communication, retirement planning and a host of other issues. Today, you may find yourself, as a financial professional, increasingly involved in administering your company's 401(k) plan.

But managing the plan properly is really no different from managing any other product you sell, except that in this case, your customers are your employees. At Bausch & Lomb, this philosophy guides all our 401(k) decisions. As with any product, you must assess why you have a demand and how much demand you have, what your customers expect, how much your product costs to produce and whether you or someone else can more effectively produce, market and sell it. Once you understand the 401(k) from this perspective, you'll be able to provide the financial leadership to guide your company in delivering a cost-effective plan.

The first thing you need to do is determine why your company has a 401(k) plan. That sounds simple, but it really isn't. For instance, does your company have a defined-benefit pension plan? If so, what kind of benefit-replacement ratio does it provide? Is that ratio sufficient? How does your company define a sufficient replacement ratio? In defining a benefit level, ask if your company looks solely at competitive employer plans or if it establishes some expected standard of living for your retirees. Who does your company believe is responsible for providing retirement funds: employer, employee or both?

Answering these questions will give you a good idea of the role of a 401(k) plan in your company. In some instances, you may not need or want a 401(k) . For example, at some companies, management believes employers are primarily responsible for providing their employees with a pension plan. In others, management may want the 401(k) to eventually replace the defined-benefit plan.

WHAT ARE YOU SHOOTING FOR?

Once you're comfortable with the role of the plan in your company, you should address goals and objectives. Having a 401(k) strongly suggests to employees that management has decided to shift some responsibility for providing retirement funds from the company to the employee. The degree of the shift will greatly influence the design of the 401(k) and its investments. If no pension plan exists or if management has terminated the current pension plan, you're really telling employees the 401(k) plan is the retirement fund.

In all likelihood, if your company is like B&L, the 401 (k) is a major piece of the company retirement plan. If so, the plan functions as a savings or investment plan. This sends a message to employees that both they and the company are responsible for providing for retirement. This undoubtedly influences the investments you offer, and those investments will probably be somewhat different than if the 401(k) plan were the retirement fund. For example, some executives believe that as a savings or investment plan, a 401(k) plan can offer riskier (and potentially higher-yielding) investments than it can as a retirement plan.

Now that you know what to expect from the 401(k) plan, the next question is what your employees expect from it. If you don't really know, you should survey them to find out. Do they perceive it the same way management does, whether as a pension-plan replacement, a pension-plan alternative, a...