Saturday, December 20, 2008

Making a List…

There was a time when Christmas shopping for my nieces and nephews was a relatively straightforward process. Simply put, we’d spend a day or two at the mall, looking for things that we thought would be genuinely fun (in my case) in a generic sort of way—some flavor of electronic car, legos, dolls, etc.

Of course, as our family has grown ever more extended—and my nieces and nephews older—it became very nearly impossible to keep up with their various and sundry interests—and to a point where the only practical solution was a gift card (even then, pains must be taken to make sure it’s from a store at which they shop).



Nonetheless, and in the spirit of the holiday season, here are some “presents” that I hope participants find on their retirement plan menus during the next year:

(1) A workplace retirement plan. It’s easy to overlook this one, particularly for those of us who work with these programs on an ongoing basis. The sad fact is that roughly half of working Americans still don’t have access to any kind of workplace retirement plan. That means no convenience of payroll deposit, no assistance from an employer match, no education and/or advice about how to properly invest their retirement savings—and, in all likelihood, no retirement savings.

(2) The ability to roll over distributions from prior programs into their current plan. We all know how difficult it can be for participants to keep up with even a single 401(k) account. How much harder is it for them to keep up with—or remember—all those stray accounts left behind at prior employers, or rolled into retail-priced IRAs? It’s better for them—and it could well be better for the plan as well.

(3) The chance to automatically increase their deferral amounts. Plan sponsors have increasingly been willing to embrace automatic enrollment—but auto-escalation, even though it’s an integral part of the Pension Protection Act’s (PPA) automatic enrollment safe harbor provisions, has proven to be a harder sell. More’s the pity. This is a chance to let participants set in motion a systematic improvement of their retirement plan fortunes—and with a minimum of effort.

(4) The opportunity to select a target-date fund. Some target-date funds have better asset allocations and investments than others, but almost all are likely to provide more favorable investment results over time than most participants will achieve on their own.

(5) Some consideration of a retirement income alternative. It’s ironic to me that we spend decades working with participants trying to help them make prudent, well-reasoned savings and investment decisions—and then, at the most critical moment (distribution), most just get pointed in the general direction of a rollover IRA or annuity. Both can be effective, of course, but can be quite the opposite as well. We shouldn’t just leave participants to their own “advices” at this critical juncture—and there is a whole new generation of options to choose from.

(6) The continued support of an employer match. I’ll admit this is a tough one, and it can be expensive, particularly when the economy is in such turmoil, and when it seems like so many others are cutting back. Still, we know that the existence of a match has a notable impact on the level of contributions, and certainly influences participation. And even if it did neither, it goes a long way toward shoring up the adequacy of those individual retirement accounts. It is, quite simply, money well spent.

—Nevin E. Adams, JD

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