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3 Reasons 401k Plan Sponsors are Smiling

3 Reasons 401k Plan Sponsors are Smiling
December 11
00:18 2018

What makes a 401k plan sponsor smile? “Simply that they have a plan in place,” says Greg Trost, President & Founder of Trost Financial in Los Angeles, California.

According to the 2018 TIAA Plan Sponsor survey of 1,001 plan sponsors from nonprofit and for-profit organizations, a robust retirement savings and income plan is a key component of any competitive workforce and benefits strategy, and most plan sponsors (53%) say their plans are intended to help employees retire on time and maintain their standard of living.

Financial advisers cite these three reasons that have made 401k plan sponsors happy:

#1: Market Performance
John C. Hughes, a benefits/ERISA attorney at Hawley Troxell in Boise, Idaho, says, “good market performance in recent years” certainly has boost employees 401k accounts, and that has plan sponsors smiling.

“The market is up!” says Charlie Epstein, Founder and CEO, Epstein Financial Services and The 401k Coach in East Longmeadow, Massachusetts. “The average account balance of the average participant is at its highest level ever in the history of 401k plans.”

While recent headlines play up the recent downturn of the market, it can’t hide the fact we’ve seen tremendous growth in most investment for quite some time. “The recent growth of value in the market has made most retirement plan accounts grow at very healthy rate,” says Joshua Sutin of Chamberlain Hrdlicka in San Antonio, Texas. “This makes the plan sponsor look good to employees and their investment advisers seem like geniuses. That being said, what goes up must come down. I would advise plan sponsors to start thinking about how to offset the risk of market volatility with their investment advisers and start coming up with strategies to show how prudent, careful and diligent the fiduciaries are being before the storms hit.”

The onus of this due diligence doesn’t fall solely on the shoulders of the plan sponsor. The plan participant needs to be proactive, too. “Outside of the recent market correction, plan sponsors have been happy about their investment returns over the last 10 years,” says Matthew J. Haywood, Retirement Plan Advisor at Krilogy Financial, LLC. in Saint Louis, Missouri. “However, investors should not lose sight of maintaining the appropriate amount of risk for their retirement goals. Investors also need to maintain a properly diversified asset allocation portfolio. If participants are educated, they will make good investment decisions.”

#2: Lower Fees & Greater Service
Here’s another headline item we’ve seen for some time. Plan sponsors are certainly pleased by this. “The average cost and fees of the average 401k plan are at their lowest ever in the history of the 401k plan!” says Epstein.

But it’s more than just lower fees. It’s also about greater value. “The average cost for managing 401k plans has decreased annually while support for participants’ retirement outcomes has increased,” says Brian Menickella, Managing Partner at The Beacon Group of Companies based in King of Prussia, Pennsylvania. “This is a trend I expect to see continue as plan sponsors and participants alike demand greater transparency from providers.”

#3: More Participation & Engagement
There’s no doubt employees like to see their 401k accounts at record-breaking levels (and they were before the recent market drop). In addition, greater service value means a greater willingness to take a more active role in saving for retirement. Of course, shifting to an “opt-out” policy framework helps even more. “Many plan sponsors seem to be happy about their employee participation levels in their 401k plans,” says Benjamin L. Grosz, a benefits and tax attorney at Ivins, Phillips & Barker in Washington, DC, “especially as an increasing number of plans have been adding auto-enrollment and auto-escalation features in recent years.”

Beyond the “auto” provisions, other elements have caused savings to increase. “Savings are up!” says Taylor Hammons, Vice President and Head of Retirement Plans at Kestra Financial in Austin, Texas “With the continued adoption of education programs, target dated funds, auto enrollment and auto escalator initiatives, more plans are reporting an increase in participation and deferral rates over the last few years. That is an encouraging sign.”

Just what types of engagement are we seeing? Again, we can point to the increased service value as to what’s now possible here. “The recent renewed interest in retirement planning has led to increased awareness and more engagement from American workers,” says Roger Lee, CEO and Co-founder, Human Interest in San Francisco, California. “As companies shift away from pension plans and the dependability of Social Security seems to be at risk, employees are realizing that the responsibility for retirement savings is falling on their shoulders. Both Boomers and Millennials are expressing interest in learning about their retirement options and taking steps to plan ahead. Personal finance websites and online tools are popping up everywhere, helping people calculate how much they’ll need to retire comfortably and how to adjust their saving habits.”

As the year approaches its conclusion, it’s a good time to reflect on the good that we have seen in the 401k world. In doing so, we can see plan sponsors have reason to smile.

Christopher Carosa is a keynote speaker, journalist, and the author of  401(k) Fiduciary SolutionsHey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on TwitterFacebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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