According to Mercer, a large international human resources consulting firm, there are
Say goodbye to revenue sharing. There are a number of potential problems if some plan participants experience higher relative investment fees in the plan because they choose funds that pay revenue sharing. First, there may be fiduciary risk for the employer from not offering the lowest cost share class of a particular investment option. There is also a lack of fee transparency when participants choose these options since they may not be aware that the cost of an option is higher due to the revenue sharing it pays. Finally, if participants investing in higher cost options do not benefit from the revenue sharing, there could be the potential for litigation.
Start to consider the impact of inflation on retirement readiness. We have lived in a low inflation environment for so long that we may have forgotten how corrosive inflation can be. As interest rates rise and the Fed adjusts its stimulus program, the negative impact of inflation on participant account balances will return. Consider adjusting your fund line-up to include investment options that are expected to perform well in a higher inflation economy.
Keep fund line-ups lean. Behavioral finance has shown that participants become confused when they have too many investment options to choose from. This confusion may lead to lack of employee engagement or enrollment in the plan. More than 60% of plan sponsors offer less than 15 investment choices and most are hoping to reduce that number to 10 or less in the near future. Think about reviewing your fund line-up in 2014, with the intent of streamlining it as opposed to adding new options.
Consider the impact of globalization on the fund line-up. International markets now comprise a larger investing universe than U.S. markets. Make sure your investment fund line-up reflects appropriate access to international investment opportunities over all asset classes. The result will be better diversification of participant account balances and more consistent participant investment outcomes.
Go mobile with plan communications. Younger participants who are tech savvy respond better to communication strategies that leverage their mobile devices. Ensure that your communication strategy for the plan evolves to reach generations X and Y to drive a deeper level of engagement.
I wish everyone a happy and prosperous New Year!
Robert C. Lawton is president of Lawton Retirement Plan Consultants, LLC, a Registered Investment Advisory firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at bob@lawtonrpc.com or 414.828.4015.
