Back in 2011, advisor Brad Arends was frustrated that one of his oldest and largest clients would not adopt auto-enrollment or auto-escalation processes for their 401k plan.
The heavy manufacturer had 87% participation in the plan, but Arends, a 2019 401k Specialist TAPO Award finalist, suspected there was a problem.
Speaking at the Excel 401(k) Conference on Tuesday, Arends, of Intellicents, relayed the story of how he first started to measure participant outcomes, starting with this big client.
Researching the plan with an aggregate retirement readiness report from Perspective Partners, he found that despite that 87% participation, the plan was failing because only 19% of plan participants were on track for a secure retirement. They weren’t contributing enough.
“It’s always a contribution problem. Always,” Arends said.
After informing the client about this disturbing fact, Arends said they agreed to install auto-enrollment and auto-escalation features right away.
Today, Arends said that retirement readiness rate is 58%—a dramatic improvement from the paltry 19% in 2011. A case study of this client is available on the Intellicents website.
Now, every year Intellicents produces a participant retirement readiness report for clients to give them a realistic picture of where their employees stand in terms of retirement preparedness. “Maybe 25% will look good when you start,” Arends said, adding that 75% will be failing because they aren’t contributing enough.
Arends spent his presentation walking attendees through five methods he uses to analyze the true effectiveness of a retirement plan.
He noted that most advisors have defined success by cost (low fees), high participation rates, and how investments are performing. But that’s not the only way to be looking at it.
“At the end of the day,” Arends said, “what we should be looking at is what percentage of your employees are on track to maintain their standard of living in retirement?”
The way he does it is by following steps, beginning with setting a goal. For example, aim for 75% of employees to be on track for a secure retirement.
By utilizing tools such as the aggregate retirement readiness report and the viability report from MassMutual, advisors can show the CFO things like unfunded liabilities that nobody is generally thinking about. Show that CFO the looming problem of older 60-something (expensive) employees who will not be able to afford to retire, and Arends said “they’ll go to ‘auto’ tomorrow.”
Step two involves working on plan design to foster plan sponsor adoption of auto techniques, including an auto-investment option for a custom TDF or at least funneling participants into the appropriate TDF for their particular situation.
Step three involves wellness for all. It’s all about employee education,” Arends said. “We are moving toward full financial wellness for all 300 plans we do.”
It is even a standalone service for Intellicents; one that can get them to the 401k plan through the back door by putting in financial wellness programs in that really work.
A final tip Arends provided during the Excel 401(k) session was his goal of making financial planning an employee benefit. He noted a recent American Century survey showing 73% of employees age 25-64 would find it attractive if their employer were to offer holistic financial planning as an employee benefit, as would 66% of those ages 55-65.