By Robert C. Lawton, AIF, CRPS, President, Lawton Retirement Plan Consultants, LLC
I hope that 2016 was a great year for you and that 2017 will be even better!
A few changes can make your good 401k plan into a great one. To help your 401k plan achieve greatness, consider making the following 401k plan improvements by year-end:
2017 401k Plan Improvements
1. Financial wellness education
The hottest of all 401k plan improvements in 2017 is financial wellness education. The greatest source of stress for your employees is financial. A 2016 Purchasing Power study reports that 43% of the surveyed group experienced at least some stress from financial issues. The report also indicates that one-third of workers have trouble meeting monthly expenses and that 41% don’t have a budget. And bad news for you: The study found that 37% of employees spend time at work dealing with personal finance issues.
This is a benefit that your employees would welcome. A 2014 MetLife study indicates that nearly half of all employees surveyed were interested in having financial wellness programs in their workplaces.
Not sure where to find financial wellness education providers? Consider referencing the Program Evaluator that T. Rowe Price has developed. The experts at T. Rowe Price have researched the universe of financial wellness providers and boiled the list down to the 14 that appear to be best-in-class. If you want to RFI the three or four best, T. Rowe has constructed an RFI template for you to use.
Not sure how to roll out financial wellness education in your workplace? Consider marrying it to your existing 401k employee education program.
2. The right investment advisor
New fiduciary rules will become effective for 401k plan investment advisors in April. Most experts believe that these rules will not be repealed by President Trump when he takes office. These regulations are very positive for 401k plan sponsors. Do you know whether your 401k plan investment advisor is signed on as a true fiduciary? Is he or she subject to a BICE agreement that you will need to sign? Is your investment advisor objective, or have you been receiving conflicted advice? You owe it to your participants to provide them with the best investment options. Make sure this year that you are working with an advisor who has your best interests in mind. This is the most important of all 401k plan improvements you can consider in 2017.
3. A guaranteed rate or stable value option
No plan sponsors offer a money market fund in their 401k plans anymore, right? You might be surprised at the number of plan sponsors that still do! Not only have prime money market funds become subject to gates and redemption fees, but their NAV’s can vary as well. That means it is now possible to lose money in a prime money market fund. Think a government money market fund is the answer? Those funds have an even lower yield than prime money market funds. Your employees deserve the opportunity to invest their money safely, without the prospect of loss and with a reasonable return. Make sure your 401k plan provides a guaranteed rate or stable value investment option.
4. Participant investment advice
Many recordkeeper platforms provide the functionality for plan sponsors to offer investment advice options to 401k plan participants. Some offerings are of the robo-type, some are algorithm-based and others, like Financial Engines, tend to be expensive for smaller-balance employees. Providing access to these services for your employees is the right thing to do. Costs range from free to expensive. Many recordkeepers provide the option of free services along with a fee-based option, allowing your employees to decide which is best for them. Investigate this option with your recordkeeper.
5. Full automation
Auto enrollment and auto escalation work. They are important plan design elements that move employees who would otherwise not participate into 401k plans and increase the contributions of those who wouldn’t contribute enough. These features also make your life easier from an administration standpoint. Go fully auto this year and implement both 401k plan improvements. Ascensus reports that less than 1% of its auto-enrolled participants opt out.
6. At least one balanced investment option
Many of your participants would rather let experts allocate their account balance among equity and fixed-income investments. Provide your employees with the option to achieve diversification in their accounts by investing in just a single fund in your plan. Offer a balanced fund or target date series.
Plan sponsors that address these potential 401k plan improvements in 2017 will be rewarded with leading-edge 401k plans.
I hope you have a successful 2017!
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton is an award-winning 401(k) investment adviser with over 30 years of experience. He has consulted with many Fortune 500 companies, including: Aon Hewitt, Apple, AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Corporation, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or firstname.lastname@example.org.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice, and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.