Yesterday, I read this article in the US News & World Report on changing trends that are anticipated with employer-sponsored retirement plans. There are some good things in store, as well as some things that don’t make a lot of sense. Keep in mind this was in response to a survey from Schwab, so the results may require a dash of salt. I’ll summarize it here:
- Reducing Automatic Enrollment. The argument here is that, the more people that are participating in the plan, the more it will cost the employer, in terms of administrative fees and matching dollars. I think this is pretty short-sighted, personally, since the employer is impacted by lower participation as well. When lower-paid employees are not participating at a high enough rate, the highest paid employees (the owners, in most cases) are limited in rate of participation in the plan. I think that the costs could be reduced across the board by looking to lower fees and inherent expense ratios in the plan, among other efficiencies (some of which are listed later).
- More Hand Holding. I think this is a very good idea, as many (most!) folks have little to any clue about what should be driving their decisions with regard to investment choices. Additional help provided by the employer is a good idea – and if the coming legislation requiring this assistance to be fiduciaries is enacted, employees will be assured of receiving advice that is in their own best interests.
- Reducing or Eliminating Employer Match. While this is a big benefit, if it doesn’t make sense to the bottom line, then the employer has to make tough decisions like this. I wouldn’t expect to see this happen on a long-term basis – it’s a strategic benefit that most employees expect.
- More Online Services. In today’s world, the efficiency and cost/benefit of this is a no-brainer. If it irritates you to get an electronic statement instead of a paper statement, you need to join the 21st century. If you simply have no means of receiving an electronic statement, you get a pass on this one, although this should be a small percentage of folks I’d think.
- Lower Fees. I think this one makes a lot of sense in the long run. Fees and expense ratios are the biggest drag on investment returns that most 401(k) investors face, so for the employer to concentrate on providing low-cost alternatives is a wonderful move. Seeking out the lowest fee custodians only makes sense as well – and could likely make up the difference in expenses noted in the first bullet point. Increasing participation should drive down costs in the long run.
So that’s my take on the story, what do you think?
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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
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