During a recent Plan Sponsor University Session at the campus of Southern New Hampshire University a lively debate ensued concerning the merits and drawbacks of having a retirement committee that gets “too close” to the decision process of when and how a plan participant chooses to invest for retirement. Most plan sponsors were well aware of the pitfalls associated with telling a participant what to do or how to invest; but beyond that a spirited discussion followed.
What is a Plan Sponsor to do?
There were two distinct positions on this topic alone. Less than half of the attendees felt there would be extra liability – placed upon fiduciaries and company leadership – if the retirement committee implements auto enrollment and a default investment option that promotes one investment choice over the others. (Surprisingly, some with this position were not familiar with the Qualified Default Investment Alternative (QDIA) which does provide some investment-function relief to the plan fiduciaries.) This view was not necessarily the view of the TPSU attendee, but it was the view of the majority of the committee – or at least it was the view of a super-vote on the committee!
Another sentiment, again shared by less than half of the attendees, was, as responsible fiduciaries, let’s do everything that we can to help prepare our workforce for the day they are planning to retire. Some in this group shared their experiences with their own retirement committee and their CEO. This position and the ensuing conversation did not make converts of 100% of the TPSU attendees but it was obvious that the entire conversation was beneficial to those on either side of the paternalism issue.
What about the Rest?
There was a small segment (10 to 15%) which represented companies that have consciously decided to remain in the center of this issue. That group indicated they do use some behavioral finance strategies within their plan structures, but that they do not go much beyond that.
