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In the ongoing competition for talent, firms are buffing up their benefits packages in 2017. Retirement adviser Bob Lawson shares 10 changes that innovative employers are making to improve the attractiveness of their 401(k) plans in the coming year.
1) Offer only R6 or similar share classes
Many mutual fund companies offer or are originating R6 or similar share classes of the investment funds they offer for retirement plans (hence the “R”). These share classes normally provide no revenue sharing and are therefore cheaper than any other share classes offered. They also typically have no minimum plan investment requirements. If your client’s 401(k) plan does not use all R6 or similar share classes now (i.e.; share classes paying no 12b-1 or sub-TA fees), make sure you convert to them in 2017.
2) Lower cost for target-date fund series
Most experts feel that roughly 75% of all participants probably belong in target-date funds. The vast majority of 401(k) plans use target-date funds as their QDIA option. As a result, the mutual fund companies feel that their most important product is their target-date series. The market for target-date funds is incredibly competitive and fund companies will continue to lower their fees in an effort to remain competitive. Make sure to evaluate target-date series in 2017.
3) Offer online investment advice for participants
Offering participants online investment advice will continue to rise in importance. Most larger plan sponsors are now providing some type of online investment advice option. Online investment advice can be sourced from a number of providers at costs ranging from free to 75 basis points.
4) Answer all fiduciary questions
With the final fiduciary rules going into effect in April, progressive plan sponsors will endeavor to ensure that they understand the fiduciary roles tied to their plans — especially with regard to their investment advisers. Every 401(k) plan should be working with an investment adviser who is signed on as a fiduciary by April.
5) Hire 401(k) plan-only investment advisers
It is becoming more important to hire investment advisers who work only with 401(k) plans. As these plans continue to become more complex, it is vital to have investment advisers who spend 100% of their time working with them. These advisers do a much better job of making things simple for employers and plan participants and have fewer conflicts of interest.
6) Integrate financial wellness education with employee 401(k) education
Many employers are finding that employees who don’t know how to create a budget can’t begin to understand how to diversify their 401(k) plan accounts. Without basic financial knowledge, employees have a hard time understanding more advanced concepts like risk and volatility. In response, leading-edge employers will be marrying financial wellness education with employee 401(k) education in 2017.
7) Provide socially conscious investment options
Data indicates that millennial employees are much more interested in socially responsible investing (SRI) than prior generations.
8) Add a Roth in-plan 401(k) conversion option
Offering a Roth in-plan conversion option in a 401(k) plan costs virtually nothing. This feature can provide tax planning options for all participants but is especially valued by executives. A Roth in-plan conversion option allows participants to convert their pre-tax balances to Roth after-tax balances at any time.
9) Allow after-tax contributions
Interest in after-tax contributions has returned. The advantage? Maximum total contributions to a 401(k) plan rise from $18,000 to $54,000 in 2017 when participants have the ability to make after-tax contributions.
10) Incorporate HSAs into retirement planning
The role of health savings accounts in retirement planning is just beginning to be appreciated. Many plan sponsors now realize that maxing out HSA accounts can be a significant retirement as well as healthcare benefit for executives.