Saturday, December 17, 2016

6 Stocking Stuffers for Retirement Participants

I can remember as a kid paging through the pages of various Christmas catalogues, earmarking the pages that contained the various things that I hoped Santa Claus (or his emissaries, my parents) would take as hints.

These days such things have been replaced by online “wish lists” – and if they’re not quite as much fun to page through, they’re doubtless more effective.

So, in the spirit of the holiday season, here are some “presents” that I hope participants find in their retirement plan “stockings” during the coming year:

Automatic reenrollment for longer-term workers.

New hires, regardless of age, are these days routinely defaulted into some type of qualified default investment alternative, whether it be a managed account, target-date fund, or balanced fund. However, workers who have been in the plan for awhile are generally not accorded that courtesy. Rather, ostensibly on the premise that they have, at some previous point in their careers, made an affirmative election to be in the funds they are currently invested. Sadly, we all know that regardless of how affirmative that initial decision was, the odds that it has – ever – been reconsidered, much less reallocated, lies somewhere between slim and “are you kidding?” It’s time we gave current workers the same option we give new hires – a good swift shift into a QDIA (with an opportunity to opt out, of course).

An easy way to roll over distributions.

Okay, I know it’s gotten easier. But if it’s actually gotten easy to rollover your 401(k) balance from a former employer to a current employer – well, that would be news worth reporting (I’m sure I’ll hear from someone). 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.

More time to repay participant loans after job change – or portability of the obligation.

No plan sponsor wants to deal with the processing of manual loan repayments once an individual has left their employ and payroll. But we all know that a major source of leakage from retirement savings comes when a participant who has a loan outstanding from the plan changes jobs. The individual may or may not be in a position to come up with the funds to pay off that loan at termination, but likely won’t, and the ensuing “deemed” distribution inevitably becomes a real one, and that just ensures that the participant will wind up with a big tax bill (that they probably won’t be in a good position to handle, either). More time to repay that obligation – or some expanded portability – would surely go a long way. Though this one is going to require some help from lawmakers.

Automatic escalation of contributions.

Though adoption has plateaued somewhat in recent years, automatic enrollment, and automatic investment in QDIAs has surely made a significant, positive impact on retirement security. What hasn’t been quite so “automatic,” even though it was incorporated as part of the PPA’s automatic enrollment safe harbor, is the auto-escalation of contributions following that enrollment. 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. Participants who are auto-enrolled at 3% need to be auto-escalated… automatically.

Some kind of retirement income alternative.


It’s (still) 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. But here we could use some help from the legislative “elves” as well.

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 lots of working Americans (though not the 50% that some still claim) 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.

And that adds up to being a big lump of coal in your retirement stocking!

- Nevin E. Adams, JD

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