Historically ‘National 401(k) Day follows Labor Day and offers advisors an opportunity to reach out to plan sponsors and participants to remind them of the importance of saving for retirement. It is also a good time for advisors to reflect on the trends in the industry and their impact on their practice.

ERISA requires fiduciaries to act solely in the interest of the plan’s participants/beneficiaries for the exclusive purpose of providing benefits and paying only reasonable plan expenses. Fortunately, both plan sponsors and the industry itself are beginning to take on that charge more resolutely, resulting in the most significant trend: a keener focus on the participant.

The pace of change is more rapid than it has been in the past few decades, which is causing some disruption for advisors that impacts their work and compensation. Fortunately, the trends are helping participants better achieve retirement income security. Many of the changes are traceable to regulatory modifications resulting from the Pension Protection Act of 2006 (PPA), and the enforcement of the fee disclosure regulations of IRC Sections 408(b)(2) and 404(a)(5).

Probably the biggest change and most positive trend in the 401(k) world is that more educators are now focused on outcome based education. How is the education changing the participants’ behaviors? Are the behaviors measured? To whom are they being reported? In my experience when you measure, you improve.

Another positive trend is to have the educator address personal financial management matters, such as debt, budgeting and spending. While these are not direct 401(k) matters, they strongly impact an individual’s ability to save for retirement and are therefore very constructive.

Many educators are also providing one-on-one meetings to discuss an individual’s circumstances. These meetings have a tremendous impact and give the participant greater confidence that the decisions they are making are the right ones.

Further, more plan providers are adding retirement income projections to their participant statements. While the influence of this is not yet clear, Acropolis thinks it is a big step in the right direction. The expectation is that many participants will see the need to increase their savings rate and maybe make adjustments to their asset allocation to meet their retirement income goal.

Administratively, companies are trying to help their employees achieve retirement income security by implementing an auto-enrollment feature to the plan. The auto-enrollment trend, which borrows some ideas from the defined benefit world, is a great way to get employees on the path of saving for retirement.

Financially, Americans are critically underprepared for retirement. Depending on the year and the source, it appears that most employees are saving somewhere between 4 percent and 6 percent of their salaries annually. However, to replace 75 percent of one’s income, most employees need to save 15 percent or more of their salary every year. This is a significant gap.

A recent study by Capital One ShareBuilder found that “while 93 percent think they should contribute some portion of their income toward retirement and half believe it should be more than 10 percent, only one-fifth are currently saving 10 percent or higher.” So what can plans do?

First « 1 2 » Next