To improve plan contribution rates, employee education meetings now include real-life examples of employees who start to save earlier rather than later and also include discussions about target-date funds and risk tolerance, says Holmes. As a protective measure, he encourages clients to keep a list of employees who attend these meetings.
Others also emphasize to plan sponsor clients that an ounce of prevention can be worth a pound of cure. Hall & Co., an Irvine, Calif.-based CPA and consulting firm that audits 12 to 15 401(k) plans every year, has talked to clients about the Supreme Court’s recent ruling in favor of plan participants in Tibble v. Edison International. Ellen Bartholemy, director of accounting services for Hall & Co., reminds clients that they need to create and follow plan processes. This includes documenting their thought processes behind their decisions, especially if they hire a more expensive service provider.
Fiduciary duty and fee disclosure remain “hot buttons,” says Bartholemy, who expects to see more 401(k) lawsuits.
The Big Picture
Mike Narkoff, executive vice president of sales for the retirement division of Ascensus, which services 40,000 plans and works with more than 10,000 advisors, is seeing advisors help more plan sponsors pick qualified default investment alternatives (QDIAs).
He notes that approximately 42% of the plans Ascensus converted from existing plans in 2013 and nearly 70% of those it converted in 2014 went through QDIA re-enrollment at the time of conversion. “This is a seismic shift,” he says. “The rate of participants who stay in default vehicles is probably north of 80%.”
Looking ahead, Narkoff thinks the next 401(k) evolution will be the embracement of managed account services, which offer plan participants customized asset allocations and highly personalized savings rate suggestions. “That’s really the end game,” he says. “The traditional enrollment meeting where you try to teach everything and hope employees make good decisions on their own is quickly becoming a thing of the past.”
Joel Lieb, director of advice in defined contribution at Oaks, Pa.-headquartered SEI, an asset manager that oversees more than $10 billion in defined contribution assets, encourages plan sponsors he works with to not just consider fees and performance but also the experiences they are providing to their plan participants.
Plan sponsors shouldn’t be afraid to take a more paternalistic approach toward helping plan participants get to healthy income-replacement ratios. Despite some initial resistance, he says most plan participants are OK with their employers taking a more active role and putting them in QDIAs.
Lieb hopes to see an emergence of customized defined contribution models that, like defined benefit models, are built around participants’ objectives. “The conversation is becoming more important as the workforce ages,” he says. “The defined contribution plan is no longer the supplemental plan.”
He’d also like to see more ways for plan sponsors to get involved in post-retirement engagement—helping employees figure out how to invest their money after retirement and protect assets throughout their lifetime. IRS guidance is needed first, he says.
He also encourages advisors to keep pitching plan-improvement ideas to their employer clients. “Plan sponsors set in their ways are generally interested in hearing what folks are doing in the industry,” he says, “even if they’re not ready today.”