Fiduciary Rule’s Impact on the Average 401k Participant

Start every discussion with financial health

Focus on getting participants to save more.Focus on getting participants to save more.

Much has now been discussed, many opinions have been offered, and much still stands to be decided when it comes to the looming DOL’s 401k fiduciary rule.

It seems to me that many in our business are looking to the April deadline and assuming we should be prepared for it, just like we prepared for January 1, 2000. Remember that? It came and went with little to no impact on the average person, just like I assume the April deadline will have on the average 401k participant.

Sure, we are keeping attorneys busy and many broker-dealers are working overtime to determine the best way to handle the changes. But what does this mean to the average participant in a company-sponsored retirement plan? Not much, but it should.

The overall spirit of the legislation (in my opinion) was to ensure that the average investor is both invested properly and not being charged excessive fees by an advisor or platform. I think we can all agree rollovers will be the most scrutinized by the ruling and that maybe the jury is still out on how that will impact us, but more importantly, how it should impact the average investor.

With the average 401k balance looming around $100,000 and actuarial tables telling us this would net around $4,000 per year to an individual participant, our mission should be clear, plain and simple: let’s work to increase savings rates. The majority of the investment options inside a 401k are good, and yes, some are cheaper, but the bottom line is that as advisors we are in high demand, more so when it comes to coaching savings behaviors.

When I look at the plans that we manage and the opportunity to help more plan sponsors, I can very easily find quite a few things wrong with the plan itself, be it poor investments, bad plan design, or excessive fees.

Most times, however, I find the value that I bring is getting in and talking with the average plan participant about saving. For example, can we cut some credit card debt? Do they have a reasonable mortgage rate? Could they save some money looking at other insurance options? Do they have a budget in place? I think you catch my drift.

In my opinion too many advisors out there are overly focused on investments, platform, and beating the indexes. This is all very important, but at the end of the day, the advisors that will win more business and loyal clients in the shadows of the DOL rule are the ones who are laser-focused on the individual and their behaviors.

We should be starting every discussion talking about saving and the financial health of the individual participants of the plan. I think had we done this years ago, the new DOL rule wouldn’t heave been needed; all the investment pieces would naturally fall into place had we remembered our primary duty to the plan participants.

Truly our fiduciary duty should be to ensure we help as many people retire as we can. If we take a step back and look at each individual holistically we will all be better off. It’s because of this our firms’ sales approach is tailored to employee engagement and education.

Let’s benchmark the participant’s engagement, review the plan to see if deferrals have been increasing, and make sure that new hires enroll in the plan as fast as possible.

The impact of the DOL rule to the plan participant should be increased saving rates. Let’s all take ownership together to ensure this happens.

T. Daniel Igo is director of retirement plan consulting with Plymouth, Minnesota-based MRK Financial Solutions.

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