As a 401k industry, we have become stronger and more efficient in delivering our services in recent years, resulting in lower platform, fund and advisor fees.
We have robust websites and flashy mobile applications, which allow us to communicate quickly and in real time. Collectively, financial advisors have greater plan design knowledge than ever before, and they have access to better fund and benchmarking tools. Not only that, but plan providers also have better solutions that ease employers’ administrative and compliance burdens.
These are great innovations and accomplishments, but as a industry, are we really getting better at what we’ve set out to do? We need to step back and ask: What problem are we trying to solve?
Back to our roots
New statistics are released almost weekly that show the staggering numbers of Americans who lack comprehensive retirement savings. This includes large percentages of people who say they are at risk of not being able to cover basic or essential expenses in retirement. A recent study found 24 percent of workers are not at all confident in having a comfortable retirement.[1]
That’s why my New Year’s resolution is to encourage our industry to return to its roots and focus on solutions that drive retirement readiness. We need to stop focusing on who is the cheapest or flashiest and start focusing on who is providing the greatest value to American workers.
A simple way to start the conversation
Interested in making this your New Year’s resolution, too? Here’s where we can start:
Develop a baseline. Use the technology available to you from your plan providers — including retirement readiness reporting tools — to gauge where your clients’ employee populations measure up.
Take action. In your meetings with plan sponsors, open the conversation by analyzing these retirement readiness reports to see if a plan sponsor’s current strategy is meeting employees’ needs for retirement income. If not, this is the perfect opportunity to recommend changes in plan design. For example, auto-enrollment and auto-escalation are simple, but important, ways to increase plan participation.
Also, evaluate match strategies that will incent employees to defer more in order to receive a greater match. For example, a dollar-for-dollar match on the first 3 percent deferred will have the same cost to the employer as a 50-cent match on the first 6 percent deferred.
Measure and optimize. Continue to analyze retirement readiness reports to see if the needle has moved. This continued measurement can help inform plan design changes or a new strategy for reaching employees with the importance of saving for retirement. For example, if automatic enrollment has improved participation, consider increasing the deferral amount (e.g., from 3 percent to a minimum of 6 percent) to further support retirement readiness.
Our commitment
If you’re like me, you chose this profession to help people. With many in our country facing an uncertain retirement, we can work harder to solve that problem. Let’s make 2017 the year we help our clients take action and better prepare employees for retirement.
[1] The 2015 Retirement Confidence Survey: Having a Retirement Savings Plan a Key Factor in Americans’ Retirement Confidence, Employee Benefit Research Institute, 2015. https://www.ebri.org/content/the-2015-retirement-confidence-survey-having-a-retirement-savings-plan-a-key-factor-in-americans-retirement-confidence-5513