Retirement expert Robert Lawton knows that “a few changes can make your good 401(k) plan into a great one.” Here, he presents six improvements to institute now to achieve better results. “Plan sponsors that address these potential 401(k) plan improvements will be rewarded with leading-edge 401(k) plans,” he says.
1) Financial wellness education
The hottest of all 401(k) plan improvements is financial wellness education. The greatest source of stress for employees is finances. Forty-three percent of a Purchasing Power survey’s participants experienced at least some stress from financial issues. The report also indicates that one-third of workers have trouble meeting monthly expenses, while 41% don’t have a budget. The study included bad news for employers: 37% of employees spend time at work dealing with personal finance issues.
2) A guaranteed rate or stable value option
No plan sponsors offer a money market fund in their 401(k) plans anymore, right? You might be surprised at the number of plan sponsors that still do. Not only have prime money market funds become subject to gates and redemption fees, but their NAVs can vary as well. That means it is now possible to lose money in a prime money market fund.
Think a government money market fund is the answer? Those funds have an even lower yield than prime money market funds. Clients' employees deserve the opportunity to invest their money safely, without the prospect of loss and with a reasonable return.
3) Participant investment advice
Many recordkeeper platforms provide the functionality for plan sponsors to offer investment advice options to 401(k) plan participants. Some offerings are of the robo-type, some are algorithm-based, and others tend to be expensive for smaller-balance employees.
Providing access to these services is the right thing to do. Costs range from free to expensive. Many recordkeepers provide the option of free services along with a fee-based option, allowing employees to decide which is best for them.
4) Full automation
Auto enrollment and auto escalation work. They are important plan design elements that move employees who would otherwise not participate into 401(k) plans and increase the contribution of those who wouldn’t contribute enough. These features also make life easier from an administration standpoint. Ascensus reports that less than 1% of its auto-enrolled participants opt out.
5) At least one balanced investment option
Many plan participants would rather let experts allocate their account balance among equity and fixed-income investments. Clients should provide employees with the option to achieve diversification in their accounts by investing in just a single fund in a plan. Offer a balanced fund or target-date series.
6) The right investment advisor
Employers owe it to their participants to provide them with the best investment options and should ensure they are working with an advisor who has their best interests in mind. This is the most important of all 401(k) plan improvements.
Robert C. Lawton, AIF, CRPS, is president of Lawton Retirement Plan Consultants, LLC, an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education, and compliance responsibilities.
