When 401k and 403b plan sponsors were asked to rate the top service they receive from plan advisors in the 2017 TPSU/NAPA Survey, improving 401k plan outcomes ranked last well behind investment selection and monitoring and compliance. In fact, with workers changing jobs regularly, especially Millennials, why should plan sponsors even care?
Running a defined contribution (DC) plan for HR and financial professionals that wear many hats and have limited formal training to run a corporate retirement plan that are complex and include big liabilities under ERISA and the growing number of lawsuits is difficult. Which is why many plan sponsors are focused on what they have to do rather than what they should be doing.
Before plans can focus on outcomes, they need to get investment selection and compliance right. Though financial wellness and employee education are hot topics and top of mind for many plan sponsors, the return on investment is still elusive as is the effect of current education methods on changing behavior.
But an even more perplexing and practical question is why plan sponsors should care about helping employees save for retirement if they change jobs frequently.
The answer is more complex. While Millennials may change jobs frequently, older employees may not. And though older workers who did not start saving early will have difficulty catching up, there are ways to help.
But what about Millennials, the largest part of today’s workforce? The likelihood of a 25 year old staying at the same company for 30+ years is remote. So why care about their retirement?
Saving for retirement has more to do with financial security and less stress than some hypothetical date when we stop working. Workers less stressed about finances are more productive. Successful and attractive corporate retirement plans are a great recruiting tool for Millennials as well as one way to keep them for a bit longer.
Beyond productivity, retention and recruitment, the results of which are hard to measure, the question is why not focus on outcomes using auto-features? The Ideal Plan with auto enrollment and auto escalation can result in less work for the plans if implemented properly. Heathy plans are less likely to be sued and, with higher account balances, will get better service resulting in less fines. And by using a stretch match, costs can be managed.
At some point the 401k industry will incorporate better portability methods to allow workers to easily move not just old DC plan balances into their current plan but also disparate IRAs. As a result, investors will be better able to manage their assets while making the company’s retirement plan more attractive to providers. Better portability technology may even allow workers to use the deferral rate of their previous employer, if higher, all of which will result in better outcomes for workers with less work and liability for companies at little or no cost.
So while the question of why employers should care about an employee’s retirement plan when they are not likely to retire with that company, the better question may be why not.
