Could your defined contribution retirement plan design be behind the times? We asked more than 300 plan sponsors about their 401(k) plans in order to figure out what’s trending in the world of retirement plans. The research results? We found that if any of these statements apply to your plan, it might be a bit retro.
1. Enrolling is “As easy as 1-2-3.”
If it takes three steps to sign up for your 401(k) plan that might be three steps too many. 401(k) plan sponsors who auto-enroll participants have jumped from 52% in 2009 to 73% in 2017. Plan sponsors who auto-enroll see participation rates of 90% on average, versus 68% for those who do not. Of course, it’s not always an easy decision for a plan sponsor to move to auto-enrollment. Top reason for not doing auto-enrollment? The cost of matching contributions. With potential tax savings due to tax reform, could it be time to reevaluate whether more could be allocated to retirement? Check out our free tax reform resources to find out what other companies are doing.
2. The options are endless.
Psychologists figured out a while ago that more options don’t always equal better outcomes (check out this fun article on the subject). 401(k) plan sponsors continue to streamline and refine their investment offerings, with 42% of plan sponsors either removing or replacing an option in the last 3 years (whereas 40% made no changes, and 18% increased options). Further, 93% of plan sponsors are using a target date fund as the default investment alternative.
3. The plan has an air of mystery about it.
Seriously, the 401(k) plan is not the place for mystery. Plan sponsors must monitor and be completely transparent regarding the fees that are paid to vendors for investment management and administration. In fact, sponsors are required to communicate fees to the plan particpants. Roughly 4 out of 10 plan sponsors review their fees annually, and the majority of them are able to reduce the fees through benchmarking studies.
4. You can match everything but your tax situation.
Roth 401(k) accounts provide new ways to diversify your retirement portfolio with respect to taxes. Have you been considering a Roth option for your 401(k)? With the growth in this after-tax option, your millennial employees could now be expecting it! Plan sponsors offering Roth 401(k) accounts have jumped from 46% in 2012 to 70% in 2017. Of those who don’t currently offer the Roth, half are planning to adopt such an option in 2018 or are currently considering adding it for 2019.
5. It’s all about that account balance.
If your 401(k) plan management is just focused on the accumulation of account balances rather than the larger issue of retirement readiness, you might be missing key issues around the financial wellness of your workforce and your participants’ ability to maintain a comfortable retirement. Measuring common plan statistics like participation rates and account balances is a great start – and 88% of plan sponsors do that – but annually reviewing indicators of retirement readiness (such as replacement ratios and individual participant projections of resources and needs) is even better. Learn how innovative companies tackle this with retirement modelers like myFiTage.
So, how did your organization stack up? If you’re feeling less than current, check out our plan sponsor training on defined contribution plan investments, including details on fees, plan structure, and investment concepts. Because learning is always in fashion!
Julie Vickery is a Senior Consulting Actuary at Willis Towers Watson. She helps organizations figure out their benefits programs and specializes in retirement benefit strategy for defined benefit and defined contribution plans. Outside of work, Julie loves spending time with her family, including her dog Buddy.