401k automated deferral features have ignited 401k plan asset growth since the late 1990s. Plans are larger, participant account balances are greater, and many plan participants are happy with their benefit account statements. Fred Barstein, Founder and CEO of The Plan Sponsor University (TPSU) and TPSU Adjunct Lecturer John Nelson discuss the various methods and options used to maximize participant account balances when a plan sponsor uses the 401k automated deferral features.
Full Transcript Below
This is Fred Barstein with 401kTV. I’m here with John Nelson, who is the adjunct lecturer for our recent TPSU program at USC. Welcome, John.
John Nelson
Thank you very much.
Fred Barstein
John is a triple threat. He started out as a risk oil lawyer here in the Los Angeles area and then moved to Santa Barbara, TPA, and now strictly a financial advisor, significant retirement plan advisor, with NFP Retirements. Congratulations, John.
John Nelson
Thank you, Fred.
Fred Barstein
So I want to ask you a few questions. Okay if we do that?
John Nelson
Sure [crosstalk 00:00:40]
Fred Barstein
One of the things you brought up was about auto enrollment. When a company institutes it, usually they already have plan people in the plan–
John Nelson
Right [crosstalk 00:00:51]
Fred Barstein
What was the issue that you brought up.
John Nelson
Well, sometimes I think the idea behind auto enrollment was to originally go back and pick participants who haven’t made an affirmative election to be in the plan. We wanted to change the default and get those folks in the plan versus leaving them by the wayside. But what you sometimes find is if the auto enrollment election may be 5 or 6%, what do you do with the folks that have actually made an affirmative election at something less: 1, 2, 3, 4%, something like that.
John Nelson
I found that employers kind of go both ways. Sometimes they say, “Well, they’ve made the affirmative election. Let’s respect that.” The other side of the coin, which I think is more important, if what we’re really trying to do is drive positive outcomes for participants at the end of the day, and we all recognize that a 2 or a 3% contribution rate is better than zero, but it’s not enough to really help employees to a dignified retirement, let’s go back and sweep those folks in, too, understanding that they always have the right to say, “No. I don’t want to do that.” I think it’s a good idea to go back and sweep everybody in at the default rate, even those that have made an affirmative election if it’s below your default auto enrollment rate.
Fred Barstein
And are you seeing your clients do that as a-
John Nelson
I am.
Fred Barstein
Yeah, and they’re comfortable with that?
John Nelson
They are.
Fred Barstein
Is there much pushback from the employees that get bumped up?
John Nelson
No. In my experience, there’s no pushback. Often times, I see just the opposite. Employees come up and say, “I’ve been meaning to increase my contribution. I just didn’t get around to it. Thank you for doing that.”
Fred Barstein
Great. Well, that’s a good recommendation and something that I’m sure our audience would appreciate. I hadn’t thought of that with all the programs that we’ve done. This was your first TPSU program. What did you think?
John Nelson
I thought it was wonderful. I appreciate these plan sponsors taking time to come out and become educated. It’s becoming more and more important now because, as you know, if on the DOL audit checklist one of the questions is, “Are you providing education for plan fiduciaries?” I think it’s important, and it was very, very rewarding. Thank you.
Fred Barstein
Great. Thanks for your time today. And thanks for watching 401kTV.
