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401(k) Outcomes: May Be More About Adjusting Retirement Expectations than Adjusting Products [OPINION]

adjusting retirement expectationsThere is a famous quote often attributed to Albert Einstein that many of us are familiar with that goes something like this: “the definition of insanity is doing something over and over again and expecting a different result.” Many defined contribution (DC) plan sponsors can relate to this state of mind considering the task at hand, as well as the fact that they are usually juggling several corporate tasks at once. Now, consider that there is little if any formal training on how to run a DC plan like a 401(k) and you have the makings of crazy situation. As the New Year approaches, it may be time for adjusting retirement expectations for legitimate goals through the company 401(k) plan.

401(k) Built on a Shaky Foundation

Let’s first try to understand the dynamics of a DC plan like a 401(k). Firstly, the history of the “modern 401(k) plan is relatively short. On top of that it seems to change from day-to-day. Secondly, a 401(k) plan was never designed to be a primary savings vehicle for retirement; it was designed as a supplementary savings plan. OK, are we all totally confused yet? See why it may be time for adjusting retirement expectations for legitimate retirement goals through the company 401(k) plan?

So why do media companies and advisors keep telling you to treat your 401(k) plan like it’s a primary savings vehicle, then tell you all of your employees are not ready for retirement and are not saving enough (implicitly suggesting you are not doing your job properly)? Why do we obsess incessantly over engagement and outcomes when these things refer to a plan that is not even design to meet these goals? It seems a bit counter intuitive doesn’t it? It seems a bit insane doesn’t it?

The Risk-to-Reward Ratio for Being a Plan Sponsor is Absurdly Tilted Towards Risk!

Now, consider that the government wants you to be personally responsible (the definition of being a “fiduciary”) for any errors or faults within your company plan. That’s right; you and all your personal assets are at risk when you are a fiduciary. Feeling insane yet?

And while sponsors cannot and will not likely escape the responsibilities of being a fiduciary, they can certainly set and adjust expectations. One area that we continually seem to come up short in is in the area of engagement. Plan participants simply cannot seem to embrace the importance of tending to their retirement plan. Yet, we have mountains of calculators, research, webinars and educational materials.

Here is a news flash: “all that stuff is not working!” So why is it that employees ignore their fate in retirement? It’s because we don’t seem to have set expectations correctly. In marketing to consumers the best advertisements target the feeling of owning a product, not the product itself. This is a science. For example, if you want to sell a car’s performance; you show someone exhilarated and carefree driving the car, not a diagram of a combustion engine. Human motivation is based on self-perception and emotion not rational thought. It is also no surprise that Millennials spend more time on social media profiles than on retirement.

It is no surprise that in studies where people are asked to imagine themselves well into the future, they see their future selves as strangers. The obvious conclusion is why save now for someone who is a stranger? If you want your employees to take a vested interest in their future selves, then they have to have an emotional attachment to that future self.

We keep trying to fix the engagement part of the equation the same way, over-and-over again with the same results. It is time for a change.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein
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