If you are 65 years old, in good health and married, there is close to a 50% chance that you or your spouse will make it to 95 (source financeware.com)
Further, there will be less and less reliance on Corporate benefits and government entitlements for retirement income security.
All of this is resulting in a shift (back) to fiscal self-reliance in retirement and – for better or worse – the 401k and 403b plan will continue to play a big role in this phenomena.
With that in mind, if you are an employer (sponsor) of a 401k or 403b plan here are 4 trends you want to know about:
1) Expense management: The new fee disclosure rules are finally having an effect – fees are coming down to earth where they should be. According to a recent survey by NEPC, LLC “Fees related to retirement investment accounts hit a record low this year. In particular, recordkeeping costs, the second largest component of total fees, saw the sharpest decline”. You can now get a very good 401k plan for an “all in” fee of 1% or less. 1.5% may be reasonable depending on the plan size and services being rendered. 2% is now excessive. Make sure to peel back all the layers of the plan – administration, recordkeeping, investments, etc. to shed light on the true cost – as the companies tend to make that difficult to see.
2) Roth Features The roth option was intended to expire on December 31st 2010 – but the Pension protection act extended the Roth Option indefinitely. Adding this feature is a no-brainer. The Roth feature allows participants to contribute after tax dollars then enjoy tax free withdrawals at retirement. While many will pass on it looking for the current deduction – some folks will go for it – so it’s definitely an option participants should now have.
3) “Auto arrangements” The jury is out and the verdict is in. Auto features work! The only thing harder than making a decision is changing one – and there lies the magic in auto features. The great book on 401k plans Save More Tomorrow informs us that nothing comes even close to auto enrollment (and its sister feature auto escalation) in improving retirement outcomes.
4) Fiduciary services: (This is not intended to be legal advice, just an overview) As you evaluate a new 401k plan (or re-evaluate your existing plan) understand that there are differing levels of fiduciary Protections to consider from partial to total responsibility including:
- ERISA Section 3(21): These advisers assume “co – fiduciary” responsibility. They can offer objective advice to the plan sponsor who then makes the final decision on investments options
- ERISA section 3(38): This flavor of advisor assumes “total” responsibility – and liability – for selection monitoring and removal of investment options
- ERISA 3(16): These folks assume total responsibility for the administration and operation of the entire plan, including hiring and firing service providers, timely filings, disclosure notices and more.