Commentary: What will those progressive plan sponsors who wish to maintain leading edge 401(k) plans be doing in 2016? Read on below to learn the top 10 trends for 401(k) plans in 2016.
1. Offer at least one professionally managed option. Participants need all the help they can get. Professionally managed investment options make it easier for them to invest in your 401(k) plan. Plan sponsors with leading edge plans have designed investment menus that feature both balanced fund and target-date options. Make sure your 401(k) plan offers at least one of these choices.
2. Online participant investment advice. More larger plan sponsors will offer online investment advice for their participants. Online advice can be found from a number of providers for little to no cost.
Also see: "Everything you need to know about robo-advisers."
3. Investment menus with active and passive tracks. You have participants in your plan that believe in active, passive or a combination of active and passive investment management. As a result, you need to effectively blend active and passive choices into your 401(k) plan menu. There is an index fund available for nearly every asset class. Your investment menu should feature a broad array of index fund choices.
4. Manage leakage. Encouraging participants to keep their balances in the plan, and not take loans or withdrawals, will continue to be important in 2016. In order to plug leakage, review your plan design to ensure that you aren't motivating participants to take money out of their accounts before retirement. Eliminate participant loans or limit the number of loans to one. Tighten withdrawal eligibility to age 59 1/2 and hardship criteria only.
5. Hire 401(k)-plan-only investment advisers. It is becoming more important to hire investment advisers that only work with 401(k) plans. As these plans continue to become more complex, it is vital to have an investment adviser who spends 100% of his/her time working with them. These advisers do a much better job of making things simple for you and your plan participants and have fewer conflicts of interest. If you work with an adviser who has a business that includes individuals, foundations and institutions, etc., consider switching to an adviser who works only with 401(k) plans. You will get much better advice.
6. Focus on the fiduciary. There will soon be a government mandated change in the fiduciary requirements that investment advisers need to adhere to. But, for brokerage firm advisers, it appears there will be many exceptions and loopholes. It will be important for plan sponsors to ensure that their investment adviser has signed on to their 401(k) plan as a fiduciary without a long list of fiduciary exclusions. The easiest way to do that is to work with a registered investment adviser.
7. Employee education featuring behavioral principles. We know why 401(k) participants make bad investment decisions. Leading edge plan sponsors are designing their employee education sessions to focus on helping participants understand what they can do to change their behavior. Update your curriculum to review the behavioral finance concepts of regret, worry and ambiguity.
8. Online employee education. Many large plan sponsors have realized that online employee education is the approach that works best for them. Short – 10 minutes or less – modules that employees can access whenever they wish (with their spouse) best fit their employees’ lifestyles.
9. Addition of Roth 401(k) options. The addition of Roth options in 401(k) plans will continue to be the most popular plan design change in 2016. Why? Because of the flexibility it offers to your executive group.
Also see: "Employees slow to embrace Roth 401(k)s."
10. Use of HSA accounts for retirement. The role of health savings accounts in retirement planning is just beginning to be appreciated. Take time to investigate how these accounts can be used by your participants to help them build retirement savings. Incorporate HSA account education into your employee education sessions and talk with your 401(k) investment adviser about how your participants can best take advantage of these accounts.
As you construct your performance plan for 2016, consider how these 401(k) plan trends may affect your initiatives.
Robert C. Lawton, AIF, CRPS is President of Lawton Retirement Plan Consultants, LLC, a RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at firstname.lastname@example.org or 414.828.4015.
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