The Hassle(s) With Student Debt Matching

 Despite a lot of enthusiastic support for SECURE 2.0’s qualified student loan matching provision (QSLP match), employers don’t seem to be adopting that provision. Maybe there’s a reason — or two.

Recently only 12% of sponsors answering Callan’s annual DC survey said they had decided to offer employer-retirement account matches on qualified student loan payments, while 49% said no and 39% said they were still deciding — and that’s a survey that skews toward larger plans, generally viewed as early adopters.

Those tepid numbers have been validated in several reader polls conducted by the Plan Sponsor Council of America (PSCA). In 2023, only 2.2% of respondents said they offer or will offer the program during the year. In 2024, it was 4.7%. In the January 2025 poll covering 154 responses, the adoption rate was just 2.6%. Oh, and the “no” votes over the years were, shall we say, “emphatic”: 66.2%, 64% and 74.7% respectively, according to Pensions and Investments.

While I understand and appreciate the impact that college debt can have on retirement savings, I’ve never been a big fan of this particular provision (albeit voluntary) of SECURE 2.0. My ambivalence[i] was borne out of a sense that I saw no reason to set out college debt for special treatment. It is, after all, a financial obligation willingly undertaken — but then, so are things like a mortgage, a car payment, or even rent. And data suggests that those taking on the biggest burden are either from higher-income households, in pursuit of professions that will result in higher incomes (law, medicine), or both.

Despite those concerns, much was made of the need for this provision, and there was a LOT of enthusiasm in the industry and industry press both prior to, and when it was included in SECURE 2.0. 

So, what happened?

Well, any number of things, surely — but I figured it was going to stall out when I first saw IRS Notice 2024-63, the aptly titled “Guidance Under Section 110 of the SECURE 2.0 Act with Respect to Matching Contributions Made on Account of Qualified Student Loan Payments.” 

Don’t get me wrong — I feel like the drafters of that guidance bent over backwards to try and make it easy for those with student debt to take advantage of the option. But at the same time, when you consider the administrative work that would need to make this a reality…

So, first off, we’re not just talking about the employee’s debt — and while it has to be something THEY are legally obligated to pay, it could be theirs, their spouses, or for a dependent. Those payments have to be made within the calendar or plan year in which they occur, and they are — as one would expect — subject to the 402(g) limits ($23,500 in 2025). So presumably those payments are impeding THEIR savings availability. Presumably.

The guidance allows the plan sponsor to take the employee’s word for it — well, at least in the form of an annual certification from the employee[ii] with regard to the amount, payment date, and loan classification, etc. Most of this on annual basis (hassle #1 — see footnote 2 for a potential hassle #2), though technically a plan can impose a reasonable deadline or deadlines for a participant to claim the match (three months after the end of the plan year is deemed “reasonable”). As a practical matter, this means the match cannot be made on a payroll basis, which many employers prefer — so, hassle #3.

Oh, and while there are provisions for a separate ADP/ACP test, that remains a timing issue (hassle #4). What do you do if someone terminates after they’ve made loan repayments, but before you’ve made the match? That would be hassle #5. Oh, and can the employee — if the plan allows workers to designate employer contributions as Roth — request that these matches be Roth as well? Well, yes, as it turns out — but if the employer has already allowed for this option — well, they’re already familiar with that “hassle” (#6).

And then, for plan years starting after Dec. 31, 2023, employers can offer the QSLP match to any employee eligible to participate in the DC plan, even if the employee isn’t contributing to the plan. Which might be another hassle (#7, if you’ve lost count). See where I’m going?

Over the past couple of years there’s been a tendency (if not a trend) to leverage the success of the 401(k) to solve or ameliorate a number of larger financial concerns (emergency savings, retirement income, financial wellness). I get it. One of my favorite aspects of SECURE 2.0 was how many of its provisions were optional — and employers are, thankfully, free to construct their benefit programs in ways that allow them to attract and retain the workers they need in the ways that make sense, and to take advantage of the tax laws to do so.

That said, I’m not surprised that a plan sponsor who has sat down with their advisor and their recordkeeper might well consider implementing a student loan match program to be more “hassle” than it’s worth. 

I guess I’m most surprised that some are trying to make this work, regardless.

• Nevin E. Adams, JD

 

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[i] For a more comprehensive exposition, see What's So Special About College Debt?

[ii] One of the concerns I have heard from plan sponsors is what happens when somewhere down the road it turns out the information provided by the employee turns out to be wrong, and corrections are required? Well, as it turns out, Q&A E-4 provides that the plan is not required to make a correction. 

(Not-So) ‘Common’ — Wisdom

There is a “common wisdom” in our business that suggests that all plan sponsors are, more or less, alike; that large plans are the inevitable early adopters of trends that, sooner or later, trickle down to plans of all sizes.

Consequently, those who make their living trying to discern trends and patterns frequently focus on the behaviors in evidence at larger programs—figuring that, in three years or so, those same characteristics will emerge across the spectrum.

There’s some logic to that perspective—and at least anecdotal evidence to support it. Human beings—including plan fiduciaries—frequently draw comfort and solace from the experience of others, and smaller programs can hardly be faulted for adopting plan designs and approaches that have been “vetted” by programs with more copious resources.

Sure enough, there are areas in which larger programs once dominated—but over time those variances have disappeared. For example, according to the Plan Sponsor Council of America’s 66^th Annual Survey of Profit-Sharing and 401(k) plans, there is now essentially no difference in the availability of Roth options (more than 90% across the board do), and no longer any difference in permitting catch-up contributions (also about 90% for both the largest and smallest plans)—and just about the same percentage of workers took advantage of this feature. Nearly all plans of all sizes accept rollovers from other plans—while just under half of plans of all sizes encourage roll-ins. And while it’s hardly common, in-plan annuity options are to be found at about 1 in 10 plans, regardless of size.

That said, I have always found it dangerously simplistic to assume that small plans will, inevitably, follow along eventually in the footsteps of their larger cousins.

‘Less’ Likely

On the other hand, consider that—and this has long been the case—that the smallest employers (those with less than 50 employees) were significantly less likely to offer automatic enrollment than the largest programs—those with 5,000 or more workers (28.9% versus 71.8%), according to the Plan Sponsor Council of America’s 66^th Annual Survey of Profit-Sharing and 401(k) plans.[i] 

There’s also a big gap in opening the door to participation; more than three-quarters (77.9%) of those larger employers now offer immediate eligibility, versus just 30.4% of smaller employers, and 37% of those with 50-199 workers. Indeed, the most common for smaller employers remains a year. Similarly, to receive matching contributions, two-thirds (62.2%) of the largest plans allow them immediately, while just 28% of smaller employers do—and 45.7% overall. Therein lies some of the danger in relying solely on the aggregate responses in discerning trends—like averages in any assessment, they can obscure considerable variances in the underlying responses.

Note that the largest plans were also significantly more likely (93.1%) to report having an investment policy statement (IPS) than were the smallest plans (though more than two-thirds of those did). There’s some irony to be found in the reality that while just over a third of the smallest employers have 26 or more fund options available on the menu, only half as many (17.1%) of the largest have that many (roughly a third have 11-15). Smaller plans were also notably less likely to review those options; only half did so on a quarterly basis, compared to 81% of the largest programs.

Advisor Attributes

There were also differences in advisor compensation; the vast majority (81.1%) of the largest programs are using a fixed fee, while only about a quarter of the smallest are (60% of those are using a percentage of assets basis). Robo-advisors were much more typical (28%) at the largest plans than the smaller programs (7.8%). The smallest plans were notably more reliant on advisors[ii] for retirement committee plan education (75.9%), while the largest plans were more likely to lean on an ERISA attorney (68%) than an advisor (37%). 

The largest plans were notably more likely (6.4%) to be considering a change to provider or advisor in 2024 than the smallest (2.7%). On the other hand, 6% seemed to be a pretty solid response across the board.

Having worked for huge firms—and considerably smaller ones—I can tell you that, when people come together in groups, they are not as different as you might think (or hope, as the case may be). That said, resources and priorities differ and often diverge. Those who target specific niches—be they industry, geographic or plan size—are well advised to be alert to the potential divergence from the “common wisdom” of industry trends.

After all, we may all be alike—but that doesn’t mean we’re all the same.[iii]

- Nevin E. Adams, JD 

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[i] Though that’s likely at least partially attributable to the preponderance of safe-harbor plan designs—73.5% of smaller employers were safe harbor plans, compared with 36.7% of larger employers.

[ii] This actually was the case for all plan sizes other than 5.000+, with somewhere between three-quarters and two-thirds of responding employers noting that the advisor provided that education.

[iii] Of course, to see those plan size breakdowns, you need the full report—details on how to obtain it can be found at https://www.psca.org/research/401k/66thAR

(What Is) The Most Important Retirement Number

 What’s the most important number when it comes to retirement?

Once upon a time it might have been considered to be “65”—that traditional age for retirement—but even though it’s the default in many retirement calculators, until recently it hadn’t even been the most common age for actual retirement. Heck, it’s not even “good enough” for full Social Security benefits these days.[i] 

Perhaps a more precise focus number in retirement planning is the one that purports to provide some level of financial security in retirement[ii]—indeed, some years back there was a commercial that prompted folks to determine their “number”—a reference to a financial result that was deemed necessary to “retire the way you want” (and perhaps when you want, though that wasn’t part of the “pitch”).

But while that was (and is) “A” number, in order to get to it, for it to have any semblance of actually fulfilling that promise (premise?), you had to first get to several other numbers; how long you expected to live in retirement is a big one—and one dependent on another number, the age at which you planned/hoped to retire—not to mention how much you expected to need in order to live in retirement.  And that, generally, if somewhat unartfully, is typically considered to be dependent on yet another number—a percentage of the amount you lived on PRE-retirement—all of which might well turn out to be dependent on yet another number—the financial resources available to you. And that likely turns out to be a product of several other numbers—personal savings, pensions, Social Security—and yes, that’s even more math, as those often depend on other…numbers, as they are impacted by markets, taxes, drawdown rates, etc... 

Little wonder that surveys show that so many haven’t made even a single attempt to make that retirement readiness assessment—and that includes “guessing” at it.

Well, for my money (literally) there may not be one single most important number about retirement, but if you’re ever going to have decent shot at achieving a modicum of the peace of mind that long-term financial security provides, you need to have at least a sense of things, a reality “check” if you will. To that end, the Plan Sponsor Council of America’s annual 401(k) Day[iii] education campaign is a great place to start in terms of pulling together the numbers that will both tell you how much you need—as well as the all-important how much you have—to do the math, to—in the words of this year’s 401(k) Day campaign—“know your numbers.”[iv]

Let’s face it, if that most important number is when can you afford to retire—or at least to not have to rely on a regular paycheck—well, it may feel like you need a crystal ball—but you’ll have a better shot at accurately predicting that future if you start with some sense of not only where you want to be (and when), but where you are. 

So, whether you’ve never done “the math”—or done it a zillion times—this 401(k) Day it’s worth taking another look—to make sure things (still) add up—and to do that, you first need to know the numbers—your numbers—the most important number of all. 

- Nevin E. Adams, JD 

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[i] https://www.ssa.gov/benefits/retirement/planner/agereduction.html

[ii] Though these days I suppose that is more accurately described as that point in life when you no longer depend on a regular paycheck. 

[iii] For the past several years, the day after Labor Day has been designated 401(k) Day (yes, there’s a tie-in with labor/workers, but just as significantly, the Employee Retirement Income Security Act (ERISA) was signed into law by then-President Ford on the day after Labor Day in 1974).

[iv] For plan sponsors[iv]—and those who support their efforts—the campaign also brings forth some important numbers about the retirement plan that has been, and will likely continue to be, such an integral component of the financing of those longer-term goals and aspirations. Significantly, along with benchmarking resources like PSCA’s Annual Survey of Profit-Sharing and 401(k) Plans, it can also help you assess how your plan and plan design matches up against—well, the “competition.”

Does Health Care Need a Behavioral Finance ‘Fix’?

An important decision, made in minutes.

No, that’s not retirement plan savings—though various consumer surveys have suggested that many spend more time mapping out their annual vacations than how they’ll fund their retirement needs. 

Rather, that’s how a new whitepaper by Voya’s Thought Leadership Council and SAVVI Financial LLC characterizes the 17 minutes that the average employee spends enrolling in benefits—including health plan selection, voluntary benefits and more. 

Now, in fairness, health care plan choices are, in my experience, less complicated that those associated with retirement. Not that they aren’t complicated, mind you—and there’s certainly concern associated with that choice (and “do overs” are hard to come by). But I suspect for most they are really “only” choosing between two, or at most three, different options—essentially packages carefully constructed by their HR groups (likely with the assistance of a benefits broker). 

When it comes to that individual decision—that choice between packages—anecdotally, at least, it seems often driven by a couple of key considerations: coverage of one’s physician(s) of choice—and cost. With regard to the latter, it is often focused on one particular aspect—premiums—though, as we’ll see in a minute, co-pays and deductibles can also factor in. Regardless, the choice is almost inevitably a “here and now” decision—one that has financial consequence, to be sure—but one that requires only that one look out no further than the year ahead. 

Or does it? That’s ultimately the premise behind that new whitepaper, “Retirement at Risk: The Relationship Between Overspending on Health Care and Retirement Readiness.” The whitepaper’s authors point out that it is a (short-term) decision with long-term consequences—and one that, with the growing consensus of the important links between health and wealth, bears consideration.

The paper basically presents the mathematical consequences of spending (too much) on health care versus how those savings could add up if instead invested for retirement. The math is—well, math. You could apply those financial choices to just about any individual financial decision and the trade-offs represented. 

But where things get interesting is the apparent rationale behind those choices—which, based on spending data, would appear to be somewhat “irrational.”

Simplistically, behavioral finance—something that has been employed so successfully in retirement plans to provide better outcomes—has yet to be applied to health care decisions. For example, the paper notes that when plans were branded to include the phrase “high deductible,” almost two-thirds of study participants chose the PPO plan, despite the fact that the high-deductible plan used in the study scenario was the more optimal financial choice. Strip out that label, and participants were just as likely to pick the plan formally known as high-deductible as the traditional Preferred Provider Option (PPO) plan (47% versus 53%)—because, after all, who wants a “high” deductible? 

The other challenge, of course, is that these HDHPs are (still) the “new” option. And here, as with retirement savings, inertia proves to be a powerful force. In fact, the paper cites a study that found that 89% of study participants… just chose the same plan they had in the previous year.[i]

In fact, while health care (and health insurance) costs have surely been rising, the paper echoes not only the conclusions, but the causations highlighted in “What’s Holding Back HSAs?”, a whitepaper the Plan Sponsor Council of America published in 2019. 

Now, in a perfect, rational world, folks would sit down and ponder the likelihood of filing a medical claim during the coming year—and perhaps think about the out-of-pocket costs if they did. They’d be aware that in 2018, nearly 60% of employees had less than $2,000 in claims—and, according to the Voya whitepaper, approximately 16% had no claims at all. They might even know that, according to a study published in the Quarterly Journal of Economics, the majority of employees at a Fortune 100 company who chose the plan with the lowest deductible—despite the premium costs—ended up spending 24% more on health insurance than they “needed” to. 

That, of course, is not the world we live in—and, helpful as the data presented in the Voya report is—well, health needs and health insurance costs tend to loom large(r) as a here-and-now concern that frequently trumps the (relatively) distant obligations of retirement. The Voya report should serve as a reminder that health care and health care costs are, and should be, an integral part of planning for retirement—and one that can, and should, be part of our current planning as well.

And for those for whom it isn’t yet, a reminder that applying some structural changes a la behavioral finance could help us all make better decisions about health—and retirement—and health care costs in retirement.

- Nevin E. Adams, JD

See also: 5 Ways to a Better HSA.

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[i] Indeed, a recent study by the Employee Benefit Research Institute (EBRI) and Greenwald Research found that 32% of those with a traditional health plan did not know whether they were offered an HDHP.

The 'Cutting' Edge?

Are employers necessary for a successful retirement system? A new proposal suggests that their role be “jettisoned.”

Not one to simply “bash” the 401(k), and to his credit, Morningstar’s John Rekenthaler, who recently opined that the 401(k) had outlived its usefulness,[i] now offers an alternative that he considers to be a superior alternative, something he titles “the New American Retirement Plan.” Despite the shortfalls his previous column attributed to the 401(k), this proposal in most of its elements seems relatively modest, at least structurally. It’s (basically – in 25 words or less), a national DC plan for all employers, probably with mandatory employee contributions, no requirement for employer contributions, and tighter restrictions on withdrawals.[ii]
Make no mistake, though – the devil, and there’s mischief aplenty here – lies in the details.

Rekenthaler’s basic premise – one that he describes not only as “the first,” but the “most important” step – is to “jettison the employer’s responsibilities,” noting that “expecting companies to sponsor retirement plans is like demanding that a dog dance; it may comply, but neither well nor happily. Companies run businesses. That is what they are created to do.”

I get it. How much simpler would business be if you, as an employer, didn’t have to worry about the cost, aggravation, and yes – liability – associated with providing benefits? But let’s set aside for a moment the impact that benefits clearly have, in terms of not only job choice, but job retention.[iii] Let’s turn our attention to a program already in existence that, as Rekenthaler suggests, “jettisons” the employer’s responsibilities. Specifically, let’s consider for a moment the OregonSaves program – the longest running, and arguably quite successful – state-run programs for private sector workers. Two years in, and admittedly absorbing a part of the workforce – smaller businesses – that is perhaps lower paid, and less tenured – that program has a participation rate of approximately 70%, and an average deferral of 5.5%. 

Now, that’s 70% better than the participation rate of those individuals previously, and that 5.5% saved is almost certainly an improvement from the 0% these workers were likely setting aside from retirement before the advent of the program. Those results, however, pale in comparison with those reported in the 62^nd annual Plan Sponsor Council of America (PSCA) 401(k) survey. We’re talking record high contribution rates of 12.2% (5.2% of that from employers, by the way) and opt-out rates of generally less than 5%, compared to the 27% or so in the state-run program. 

And yet while Rekenthaler’s initial premise regarding the 401(k)’s “expiration” claims the current system has failed to deliver on its promise, here there’s not even an attempt to quantify what this “new” approach would produce in terms of retirement income adequacy, nor any notion of what level of mandatory employee contributions might be required to offset the loss of employer contributions. Could an unmandated employee contribution-only account produce “enough?”
Rekenthaler leaves open for “discussion” whether employee participation should, in fact, be mandatory, or mandatory only up to a certain level, and whether there should be a voluntary employer match or not. But adequacy of retirement funding isn’t even mentioned.

Despite the concerns raised (and acknowledged in a subsequent post) regarding the adequacy of the current system, he seems content to put forth a program he considers to be superior in design, apparently assuming it would also produce superior, if not sufficient, results – leaving it to the rest of us to work out – and presumably live with – the details.

Indeed, with as many opportunities for misuse, abuse, and underuse as the current voluntary system contains, it’s nothing short of amazing just how successful it has been in helping provide, in conjunction with Social Security and personal savings, the prospects for a financially secure retirement, nurtured by select tax incentives and bounded in by nondiscrimination rules and eligibility tests.

Sure, there’s still room for improvements in the current system – but mostly it seems to me that the problem with the current system seems to be that there’s not “enough” of it. As for the wisdom of cutting the support of employers from the current system – well, that seems to me like cutting off your nose to spite your face…

- Nevin E. Adams, JD

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[i]His columns are generally thoughtful and thought-provoking, his perspectives rational and well-reasoned, his commentary nearly always not only interesting, but entertaining. But on this one – well, let’s just say we disagree.

[ii]As for leakage – well, Rekenthaler’s solution there is a simple one: “Forget tax penalties; they do not sufficiently deter foolishness. Instead, ban early withdrawals outright. After all, retirement-plan investors receive a benefit from the government for deferring taxes. It is only fair that they give something back.” Only consider for a moment – if you knew as a matter of course when the money was being automatically deducted from your paycheck that you would never again be able to access it for anything pre-retirement – how might that affect your  opt-out decision? (My guess is you’d hold back some, if not all.)

[iii]Not to mention the widespread availability and applicability of Social Security, which, though technically an insurance, not an account-based program, ostensibly already has many of the attributes Rekenthaler prizes, while drawing 12.4% of all wages up through $137.700/year.

Has the 401(k) Passed its ‘Expiration Date’?

That’s the premise behind a recent column by Morningstar’s John Rekenthaler, who writes that “the plans are as good as they can be under the current framework – and that's not good enough.”

I had the pleasure of meeting John a number of years back – and I’ve been keeping up with his writing ever since. His columns are thoughtful and thought-provoking, his perspectives rational and well-reasoned, his commentary nearly always not only interesting, but entertaining. But on this one – well, let’s just say we disagree.

John acknowledges that his views on the 401(k) have “evolved,” and that while he has long been in the camp that called for improvements in the current system, a “defender” of the 401(k) – but now, apparently, he’s calling for an “overhaul.”

‘Leaky’ Assumptions

He doesn’t fault the current system for its perceived shortcomings; he notes that the 401(k) wasn’t designed to be a solution for the general public’s retirement, saw the growth in the 1980s and 1990s as “modest,” and while he apparently saw the advent of automated design solutions as “solving half the country’s problems,” that confidence seems to have been shaken by a couple of academic studies. And that’s where things begin to get shaky.

“Whether auto-enrolled or not, leakage from 401(k) accounts, caused by early withdrawals, is substantial,” he writes, going on to cite one paper that “shows for households under the age of 55, average 401(k) outflows equal 40% of the inflows. Another study, by Laibson's co-researcher Beshears, estimates that, within the first four years, 25% of the benefits of automated-enrollment programs are consumed by early withdrawals.”


Now, John’s not the first to have logic waylaid by respected academics. One of these “studies” got picked up in the Wall Street Journal back in 2018. I encourage you to revisit my analysis of that survey at your leisure, but here’s the salient part(s): this study is based on activity at a single firm. One. Granted, it’s described as a large (approximately 7,500-participant), Fortune 500 financial services firm – but it’s one that even the researchers concede has high turnover. It’s also, based on the salary information provided, one with relatively modest income workers. However, even with those impediments, automatic enrollment did “work” – transforming the plan’s participation rate from 62% to 98%.

That said, you can imagine what happened when the employer in question adopted automatic enrollment in a plan of modest income workers; you get more, albeit arguably smaller, account balances (also their contribution default was just 2%). And with a workforce that has high turnover – those smaller balances are more likely to be cashed out – and then create “leakage.” And apparently in this isolated circumstance, with contribution rates (and amounts) so low and turnover so high you can actually get a result that allows you to conclude with a straight face that the withdrawals add up to 40% of the inflows. A conclusion that might well be transformed by the casual reader into an assumption that the result could rationally be imputed to the 401(k) system at large  And then (with a similarly straight face) hold that  out as though that is in any way representative of the 401(k) system overall.

All in all, Rekenthaler’s issues with the 401(k) appear to be two-fold: the aforementioned issue with leakage[i] – and coverage. The former he apparently wants to rectify by “replacing early withdrawal tax penalties with a stronger deterrent.” However, since he appears to want to preserve a participant’s right to “opt out” of this new design, it seems fair to worry that restricting access to those funds will almost certainly diminish the amount(s) that workers are willing to set aside in those accounts. In other words, there may be less coming out – but then, there might well be (much?) less going in.  

Access Able?

As for coverage, Rekenthaler apparently wants to solve with some kind of program such that “Every worker at every company, in every state, in every industry, will have access to a New Retirement Plan.” Apparently he’s not referring to Social Security, though of course, it already extends that far.

However, when it comes to coverage, I share Rekentaler’s concern. As we’ve commented before, with all of its success, and expansion, with all the trillions of dollars now set aside for retirement, coverage remains an issue. We’ve estimated that nearly 5 million employers nationwide do not provide a retirement plan to employees, and as a result some 28,280,000 full-time employees still do not have access to an employer provided retirement plan.

Now, Rekenthaler’s hinted at a solution (he promises to unveil it today) – that involves “removing the employer from the system.”
And that’s where I think he makes a (really) big mistake.

There’s no doubt that a system that relies both on voluntary action on the part employers and an active response by workers will inevitably miss some – and indeed there’s no getting around the reality that, 40 years on, retirement plan coverage has, basically, “flat-lined”.

That said, there’s already a version of “removing the employer from the system” in place, of course – it’s the state-run programs for private sector workers in Oregon, and more recently in California. Proponents tout the contribution and participation rates of those programs as a success and – relative to their non-participation outside those programs–,that’s a fair assessment.

Of course, those contribution (5.5%) and participation (approximately 70%) rates pale in comparison to private sector plan experience, where participation rates in automatic enrollment plans typically exceed 90% and where the 62^nd annual Plan Sponsor Council of America (PSCA) 401(k) survey recently found a combined employer/employee contribution rate of 12.2%.

The involvement of the employer is even more compelling when you consider that even workers of relatively modest means (those earning $30,000-$50,000/year) are 12 times as likely to save for retirement ina tax-advantaged account if they have access to a plan at work.

There’s something to be said for making it easier to transport those accounts from one employer to another, for making it easier to roll them over into an IRA than to simply take the distribution in cash. That said, the problem seems not to be the 401(k) plan, but the lack of 401(k) plans – plans that thrive because of the support and encouragement of employers – not just in enrollment and education, but in the matching contributions which often accompany such undertakings. 

It’s been said that there’s no use crying over spilled milk. But it seems to me that discarding the 401(k) as “expired” would be like throwing out milk weeks ahead of its “best if served by” date.

- Nevin E. Adams, JD

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[i]With regard to leakage, while it’s an issue of some concern, none other than the non-partisan Employee Benefit Research Institute (EBRI) has previously considered the issue, and found that cashouts at job change were found to have a much more serious impact on 401(k) accumulation than either plan loan defaults or hardship withdrawals (even with the impact of a six-month suspension of contributions included, and though thanks to recent legislation, that should be less of an issue going forward. How much more? Well, cashouts at termination were approximately two-thirds of the leakage impact. 

‘Still’ Standing: 6 Key Industry Trends to Watch

The Plan Sponsor Council of America recently released its 62nd Annual Survey of Profit-Sharing and 401(k) Plans, documenting a record high rate of savings, alongside an uptick in Roth contributions and other trends. However, sometimes the things that don’t change can be just as telling…

Target-date trends (still) dominate, but… 

Let’s face it – target-date funds are one of the most common items on a plan investment menu today (the PSCA survey noted that it’s the option in which assets are most frequently invested) and – in no small part due to their prevalence as a default investment alternative – continue to garner a lion’s share of new contribution dollars, if older savers (perhaps more precisely, longer-tenured savers) haven’t embraced (or more accurately, been defaulted into) the option with as much enthusiasm. That said, while more than two-thirds (68.6%) of respondents offer a target-date fund option, that’s actually down 5% in the past two years.

Interestingly enough, the PSCA survey found a rough 50-50 split among respondents between those relying on target-date fund glidepaths that are “to” versus “through” retirement. Additionally, actively managed TDFs outnumber passive by more than two-to-one among plans with fewer than 5,000 participants. That is reversed among plans with more than 5,000 participants.

Robo-advice (still) isn’t making much headway.

Just 1 in 10 (10.9%) of plan sponsor respondents provide participants with access to a robo-advisor, and if that’s somewhat higher (approximately 15%) among larger programs, the vast majority do not.

However, it may be worth noting that 15.6% who don’t currently say they are considering the option, particularly among smaller programs – though in last year’s survey, that was 17.2%.

Automatic enrollment (remains) a large-plan feature.

Fewer than a third (30.5%) of the smallest programs offer the feature, and only about half (56%) of plans with 50-199 participants, compared with roughly three-quarters among larger programs. On the other hand, roughly a decade ago – when the Pension Protection Act of 2006 was new – only about a third (35.6%) of respondents to the PSCA survey offered automatic enrollment. But then, it’s now been a decade… 

Not that it’s not been considered – but asked why those that didn’t offer the feature had made that choice, the predominant reason given was satisfaction with participation rates.

However, among the largest (> 5,000 participants), the most cited rationale was… cost.

Once participants are enrolled, they (still) tend to “stick.”

The percentage of participants who opt out of automatic enrollment programs in private sector retirement plans has always been relatively small, generally 5-10%, and in this year’s PSCA survey some 70% say that the opt-out rate remains 5% – or lower.

That stands in some contrast with the data we have seen with the early state-run plan options, where the opt-out rate has been in the 25% and higher range, though those programs lack an employer match and the nurturing that employment-based plans typically provide. And, arguably, the 75% who “stick” there are better off than with no plan at all.

Financial wellness is (still) largely a large plan feature. 

While nearly half (45.8%) of the largest (5,000 or more participant) programs claim to have a “comprehensive financial wellness program,” only about a quarter (27.1%) of those with 1,000-4,999 participants do, as do only 22% of those with between 200-999 participants.

For all the coverage that the subject engenders – and it’s considerable in this space – it’s not unusual to find awareness and interest gaps among plan sponsors, with perspectives ranging from ignorance to ambivalence to downright skepticism, even among large plan sponsors. The data here (and in other surveys of plan sponsors) suggest that the concept/focus is far from universal.

Traditional success measures (still) dominate.

Participation rates remain the dominant success measure of plans of all size: 87.6% overall, and more than 95% of the largest programs, cite that benchmark. Deferral rates rank second – 75.8% overall, but higher among larger plans, with average account balances a distant, but (to my eyes, anyway) a remarkably robust third.

For all the talk about an expanding focus on outcomes, income replacement ratios are a distant fourth, although 42% of the largest programs (those are the ones with the financial wellness programs, after all) do track this benchmark. Of course, particularly with a voluntary approach to retirement saving, employers may well be hesitant to establish as a benchmark of success the attainment of a goal that is not only unique to each individual, but generally outside of their ability to control or influence.

Though we can hope that participants – who do have some control over that outcome – are paying attention.
Industry surveys, particularly those with a broad range of plan types and providers and the perspective of decades that PSCA’s survey spans, provide an invaluable sense and appreciation of not only where things stand, but also how far we’ve come.

And sometimes, even when the trend is more or less status quo, and perhaps even more so, their real value lies in helping us see where we need to be.

- Nevin E. Adams, JD
 
More information about the Plan Sponsor Council of America’s 62^nd Annual Survey of Profit Sharing and 401(k) Plans is available at www.psca.org.

Easy Come, Easy Go?

Earlier this year, I commented that it would be interesting to see how expanded access to hardship withdrawals might impact that activity. Now we have some answers.

There’s more than a little irony in a legislative body that has long bemoaned both the paucity of retirement savings and the nefarious impact of “leakage” (pre-retirement withdrawal of retirement savings) opening those floodgates a little wider – but mostly the new law, and clarifying regulations[i] seemed to provide plan sponsors a bit more flexibility in administering these programs, some welcome latitude in helping their workforce navigate choppy financial waters.

What remained unknown was – would participants take advantage – or, more precisely, would they abuse the privilege.

The first sign – and it was a bit of an eye-opener – came from Fidelity who, in a white paper, claimed to have seen a shift in participant behavior. Not in the percentage of participants taking loans and hardships overall, but - at least among Fidelity-recordkept plans, there were fewer loans and more hardships. Less than 6 months after the law took effect, based on the evidenced trends, they predicted that the annual loan rate for 2019 would dip slightly to 9.2%, while the annual hardship rate would rise to 4.4% – up from about 3% in 2018 and an average rate of 2.2% since 2009, according to their data.

Intrigued, I posed the question to NAPA-Net readers in early October – and the responses indicated that while the move to embrace the option was underway, it was – well, it was still underway. Just over a third (35%) said the rules were already in place at most of their clients, and nearly a quarter (24%) said they were already in place at all of their clients, while another 23% said they were in place at “some” of their clients. The rest were in “not yet” territory. The most surprising aspect (to me, anyway) was the lack of plan sponsor response to the impact of the changes (at least in earshot of their advisors).

Now we have a direct response from plan sponsors, courtesy of a “snapshot” survey on the subject by the Plan Sponsor Council of America. The PSCA found that nearly two-thirds (65%) of respondents already have adopted the new hardship provisions. However, most (73%) reported no change in the number of hardship withdrawals since the new provisions were implemented. Fewer than one in five (17.8%) noted an uptick in hardship withdrawals in 2019 – but even among those that did, the vast majority (92%) are not considering any changes to their provisions at this time. Indeed, most plan sponsors amended their plans even where change was not mandatory; 65.1% eliminated the requirement to take plan loans before taking any hardship withdrawal, and 59.6% expanded the assets available for hardship withdrawals to include earnings on 401(k) contributions. More than half (52.3%) voluntarily expanded the list of reasons that qualify for a hardship distribution.

It's still early to assess the long-term impact of these changes, of course, though plan sponsors appear to have embraced them without much hesitation. And if the recent take up rates have been pretty much status quo – well, the markets and unemployment numbers have been good, and the natural disasters that often produce upticks in financial hardships have been muted of late. Yes, it’s early to evaluate the impact – to see if greater access will mean more access, to see if removing barriers does, indeed open floodgates, or if knowing that it will be easier to access the money, individuals are less inclined to do so.

In sum, to see if addressing the hardships of today wind up creating hardships down the road.

- Nevin E. Adams, JD

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[i]The expanded access, of course, came courtesy of the Bipartisan Budget Act of 2018, which, among other things, set aside or made optional several of the penalties and restrictions that had long been in place to discourage usage, and/or to ensure that the request was “serious.” This included aspects like the requirement to take a plan loan first (it’s now optional), and more significantly, the suspension of contributions. The changes not only broadened not only the categories of contributions eligible for hardship (it now includes matching contributions and non-elective contributions, as well as earnings on those accounts), but also included changes in the ability to qualify for a hardship distribution in the case of casualty losses and losses associated with federal disaster areas. The IRS also loosened the rules for determining the status of a hardship – arguably lessening the burden of both requesting and approving these distributions (final regulations were published in September).

7 Smart Shopping Steps to Avoid Buyer’s Remorse

Shopping for a new provider is not something one would normally equate with a Black Friday foray or a Cyber Week scramble. But if you have a plan sponsor — or plan sponsor prospect — who’s thinking about shopping for a new provider, here are some ideas to share.

Make a list — and yes, check it twice.

In an area fraught with as much potential complexity as searching for a retirement plan provider, it’s easy to think you can learn what you need to look for by simply going through the process. And while it’s certainly a learning process, doing so without a sense of core needs is a bit like going grocery shopping on an empty stomach; everything will sound good, and you’ll likely overload on the “sugar” (and perhaps overpay as well).

Even Santa Claus makes a list — so should you: of plan design features (real and anticipated) that you want supported.

Don’t neglect the problems.

Odds are if a plan sponsor is serious about a change in providers, there’s a reason – and it’s usually a sign of trouble, a problem, or worse – more than one problem. Even if that’s not the primary motivation, even the most well-run plan and satisfied plan sponsor has in their memory some issues, service shortfalls, or perhaps service incapability that have left a bitter taste.

The best way to avoid disappointment is to be clear about expectations – making sure that those are detailed and shared plainly with potential providers, preferably with a preface of “what procedures/protocols do you have in place to prevent something like….”

Give yourself plenty of time.

There’s nothing quite like the adrenaline rush of snagging that last desired item from the store shelves or happening upon that cyber deal minutes before it is slated to expire. And yet those moments are surely outnumbered, if not eclipsed, by the many more times that those who defer action until the last minute walk away empty-handed.

Human beings are, generally speaking, poor judges of time requirements, particularly with things with which they don’t have a lot experience (like provider searches) and that require the involvement/input of committees (like provider searches). Even those who are lucky enough to accurately gauge and/or have sway over the multitude of unforeseen obstacles and distractions that inevitably emerge, may well find that the provider of choice has time restrictions of their own. The good ones tend to fill their on-boarding queues quickly, after all – and plan sponsors who make their decisions late may well find that opportunity door has closed.

Have — and know — your budget.

These services aren’t free, though we all know they may be packaged in such a way that the plan sponsor doesn’t have to write a check. At a minimum, plan sponsors should know how much they are able — and willing — to pay. Beyond that, whether they write a check or not, they’d be well-advised, as a plan fiduciary, to be attentive to the cost(s) of the plan, who’s going to be pay them, and how those who provide services to the plan will be paid, and by whom. And they should have a functional understanding of how that compares with alternatives (including the incumbent arrangement).

Remember that provider rankings are only a starting point.

I’ve never put much stock in online consumer ratings – even before we discovered that some of those are bought and paid for by the products/firms rated. Sometimes those ratings contain clues that can help inform your decision, of course, but I’ve never really understood the value in knowing what a complete stranger thinks/feels about a book, music album, movie or restaurant. Complicating matters is the very human tendency to “weigh in” mostly on things you absolutely love – or absolutely loathe. 

Think about it — a finite number of plan sponsors (often an infinitesimally small percentage of their actual client base) about which you know nothing – including all the things that factor into such perspectives – the complexity of plan design, capabilities of staff or breadth of perspective/experience or tenure with the provider – rate those provider capabilities on some arbitrary point scale, and from that some kind of satisfaction score is gleaned (sometimes, god forbid, it’s an average of averages).

It’s not a bad place to start, if only to winnow the field of consideration — but like those rankings on Amazon, they have a limited value in predicting YOUR satisfaction with that platform. They’ll more likely affirm your preexisting preferences or fuel your imbedded concerns, but they aren’t much benefit in creating new ones.

Trust — but verify — references.

Anybody who’s paying attention will vet references before passing them along. As a consequence, proffered references are, almost by definition, going to be positive (though I never cease to be amazed how many are simply dredged up from an old RPF file without being refreshed).

But even vetted and verified references can provide insights. Press for references that are similar in terms of plan size, design and complexity. It’s often insightful to look for a similar plan who has converted to their platform in the past year — better still, someone who has left that platform in the past year (though it will likely be due to M&A activity, not service or fees). Those who have recently transitioned can be a fount of real-world wisdom on things such as what questions they wished they had asked when they went through their process.

Get help.

Unless they are a serial provider shopper (and if they are, watch out), odds are they aren’t expert at the business of shopping for a provider. It is a complicated and time-consuming process, with an abundance of opportunities for disconnect in expectations simply because the “right” question(s) aren’t asked, and sometimes because the “wrong” answers aren’t recognized as such.
Plan sponsors are, of course, as an ERISA fiduciary, expected to review (and subsequently monitor) those that provide services to the plan with the skill and expertise of a prudent expert. Those who lack that expertise are expected to engage the services of someone who does.

Lest they wind up finding that all that shiny wrapping is just covering up what turns out to be a lump of coal instead.

- Nevin E. Adams, JD

A Hallmark Holiday?

I don’t know about you, but I’ve always had a certain ambivalence about what are generally termed “Hallmark holidays.”

You know the ones I’m talking about – the ones that seem crafted for the sole purpose of generating sales for greeting card sellers. Of course, after a while you no longer question their existence – and if one still struggles to remember exactly when “Grandparent’s Day” is, well, we’ve pretty much got Mother’s Day, Father’s Day, and Valentine’s Day down to a science (one that might not be on your calendar is National Slap Your Irritating Co-Worker Day, October 23). Indeed, these days there are months on the calendar devoted to a whole series of acknowledgements and remembrances.

There are also a number of occasions set aside to recognize the importance of saving (America Saves Week –February ), the importance of planning for retirement (National Retirement Planning Month – July, and National Retirement Planning Week – April), and the issue of retirement security generally (National Retirement Security Week – October). There’s even a National Financial Literacy Month (April) and National Financial Planning Month (October).

While I’ve had some involvement with most of those during my career (mainly to remind folks about their occurrence) and, sadly, for many those events are often dismissed as “Hallmark holidays” – even for those of us who have made a career-long commitment to helping improve the nation’s retirement prospects.

That said, one that has stuck with me – even prior to our affiliation with the Plan Sponsor Council of America – is 401(k) Day. This year it falls on Friday, September 6 – a date chosen in acknowledgement of the fact that, as retirement follows labor, this focus on retirement follows Labor Day (fans of history or trivia may appreciate that then-President Gerald Ford signed the Employee Retirement Income Security Act (ERISA) into law on the day after Labor Day, 1974).

Of course, these days the focus has broadened, and incorporates a focus on financial wellness ahead of retirement, as well as preparations for that time yet to come. Like retirement itself, the preparations are best attended to on an on-going basis, rather than a single date on the calendar.

Readers of this publication are all too aware of the challenges that confront our nation’s retirement savings system – widespread financial illiteracy, a persistent coverage gap, and looming shortfalls in the underpinnings of Social Security. That “familiarity” with these complex issues perhaps makes it too easy to dismiss the opportunity that an occasion like 401(k) Day represents.

Sure, we’re talking about these issues every day – but as a friend reminded me long ago, even a Hallmark holiday can provide an opportunity to pay attention to the people – and things – we often take for granted.

So, this year, let’s (all) take advantage of the “occasion” – all year long. You can find out how at https://www.psca.org/401kDay

- Nevin E. Adams, JD

How Much (Should) a New Committee Member Know?

A recent federal court decision should remind us all of the importance of plan committee education.

The case involved a suit by participants in the SunTrust 401(k) plan (see Is Fiduciary Responsibility Retroactive?) that challenged the initial selection of, and subsequent acquiescence with, an ostensibly imprudent plan investment menu. The court’s decision focused on one aspect of the case: the liability of “new” plan committee members for actions that predated their involvement on the committee, but continued after their involvement. The court, in a decision that will likely be viewed favorably by new committee members, excluded them from liability for committee moves that predated their participation, at least to the extent they lack “actual knowledge” of imprudence.

Along the way to that determination, Judge Orinda D. Evans of the U.S. District Court for the Northern District of Georgia incorporated the testimony of those new committee members as to the training/information they received as they joined. While it may reflect their recollection more than the reality, they convey[1] a very strong sense of being handed reading materials, and left to their own devices to fill in the blanks.

The deposition questions were doubtless focused on the particular aspect of fund selection, and perhaps dealt with nothing beyond that. Indeed, several of the committee members did recount both an exposure to the plan document itself and some awareness of the importance of their role as a plan fiduciary.

As a baseline, I have long maintained that every plan committee member needs to know that:

You are an ERISA fiduciary.

Even if you consider yourself to be a small and relatively silent member of the committee, you direct and influence retirement plan money, and fiduciary status is based on one’s responsibilities with the plan, not a title. Simply stated, if you (or the committee you are part of) control the plan’s assets (such as choosing the investment options or choosing the firm that chooses those options), you are a fiduciary to the extent of that discretion or control.

You are responsible for the actions of other plan fiduciaries.

All fiduciaries have potential liability for the actions of their co-fiduciaries. For example, the Department of Labor notes that if a fiduciary knowingly participates in another fiduciary’s breach of responsibility, conceals the breach, or does not act to correct it, that fiduciary is liable as well. So, it’s a good idea to know who your co-fiduciaries are – and to keep an eye on what they do, and are permitted to do.

As an ERISA fiduciary, your liability is personal.

If they didn’t hear this message out the outset, the onset of litigation surely brought this reality home to the committee members. A committee member may be required to restore any losses to the plan or to restore any profits gained through improper use of plan assets. Now, you can obtain insurance to protect against that personal liability – but that’s probably not the fiduciary liability insurance you may already have in place, or the fidelity bond that is often carried to protect the plan against loss resulting from fraudulent or dishonest acts of those covered by the bond. If you’re not sure what you have, find out. Today.

The plan’s investment policy matters.

Note that I didn’t say the plan’s investment policy statement. The law (ERISA) doesn’t require that you have a written investment policy statement, but that same law does expect that the plan’s investments will be monitored as though one was in writing. Indeed, the vast majority of plans do have a written IPS – more than 90%, according to the Plan Sponsor Council of America’s 61st Annual Survey of Profit Sharing and 401(k) Plans.

More than that, generally speaking, you should find it easier to conduct the plan’s investment business in accordance with a set of established, prudent standards if those standards are in writing, and not crafted at a point in time when you are desperately trying to make sense of the markets. In sum, you want an IPS in place before you need an IPS in place.

And a suggestion for you: have a formal “on-boarding” process for plan committee members.

Every plan, and every plan committee is unique. But the responsibility, and the prudent expert standard to which those responsibilities must be held applies uniformly – and it has been called “the highest known to the law.” In forming and conducting the committee it’s imperative not only that the members be selected wisely, but that they be informed and engaged so that they can adequately and fully discharge those responsibilities.

One recent court decision (Wildman v. Am. Century Servs.) in favor of the plan committee defendants explains that the committee met regularly three times a year, and had “special meetings if something arose that needed to be discussed before the regularly scheduled meetings.” Moreover, the defendants testified that those meetings “were productive and lasted as long as was needed to fully address each issue on the agenda. On average, the meetings lasted an hour to an hour and a half.”

The plan provided “training and information about their fiduciary duties, including a ‘Fiduciary Toolkit,’ which outlined their duties as fiduciaries, as well as a summary plan document, and articles regarding fiduciary duties in general.” That kit included a copy of the current Investment Policy Statement, and the court noted that “the Committee members read these materials and took their responsibilities as fiduciaries seriously.”

Arguably the personal interests of the new plan committee members in the SunTrust case were, at least at this stage, “well-served” by their lack of education (more specifically, the lack of “actual knowledge”) regarding the background of the decisions made prior to their appointment. However, this is only one set of issues, and they may yet be held to account for their subsequent affirmation (be it active or passive) in the continuance of those decisions.

And that’s when ignorance of your duties as a plan fiduciary can be really expensive.

- Nevin E. Adams, JD
 
Footnote

1. Defendant Jerome Lienhard stated in his deposition that he received binders describing the funds in the Plan “presumably” containing documents describing fiduciary standards, that he spoke with Defendants Donna Lange and Ken Houghton about being a Benefits Plan Committee member and, upon becoming a member of the Benefits Plan Committee in August of 2006, familiarized himself with the Plan document. However, he did not recall taking action to determine whether previous breaches of fiduciary responsibility had been committed.

Defendant Christopher Shults said that he received training regarding the funds in the Plan when he became a Benefits Plan Committee member, and that he was “directed… to meet with an investment consultant representative "to become more educated about the investment decisions made by the Benefits Plan Committee.” However, he did not "remember any of the details of specificity around what we discussed" and he did not recall discussing previous investment decisions by the Benefits Plan Committee with the representative. Nor did he recall learning about selection decisions made by the Benefits Plan Committee prior to his becoming a member.

Defendant Mimi Breeden remembered that she “would have talked to subject matter experts and [her] staff and others to come up to speed on what the committee’s work was” and “what key priorities were,” that she “probably” had knowledge of the history of the Plan before 1997 but could not recall it or any information about the 1996 selection of Affiliated Funds, and that she could not recall whether she ever knew about the initial selection of Plan funds in 1996.

Defendant Mary Steele was sure she had read the Plan document at some point while a member of the Benefits Plan Committee and that Defendant Donna Lange briefed her regarding her fiduciary responsibilities as a Benefits Plan Committee member and “the most important things that [she] need[ed] to know about the committee,” and that while she did not remember how the SunTrust proprietary funds first came to be offered in the Plan, but that the 1996 change in the Plan from common trust funds to mutual funds “sound[ed] familiar.”

Defendant Thomas Kuntz did not recall whether he received any training regarding his duties as a Benefits Plan Committee member or whether he reviewed prior meeting minutes, though he recalled that the Benefits Plan Committee, “[a] s a matter of course,” “reviewed all the funds in the plan ... for appropriateness.” In a disposition he explained that he believed the proprietary funds in the Plan were appropriately included because “[t]hey looked to be reasonable choices based on assessments that [he] might have had at the time,” though he did not recall what those assessments were.

Defendant Donna Lange said that she was not aware of the process used in initially selecting the Affiliated Funds in 1996, just that “the approved funds were in place when [she] arrived.” As for that 1996 fund selection, Lange went on to say that she did not "recall studying this other than being aware “this is the plan, this is what we started with.” She did state, however, that she knew the Plan was only using proprietary funds when she arrived.

Defendant Aleem Gillani stated in his deposition that he does not recall ever being briefed or “brought up to speed” on the Benefits Plan Committee's decisions prior to becoming a member, and that he had no knowledge of them when appointed to the Benefits Plan Committee.

Finally, Defendant William H. Rogers, Jr. stated in his deposition that he has no knowledge of the initial Affiliated Funds selection in 1996, 1999, and 2001.

7 Signs of the Times

A month ago, when we wrote about the 61^st Annual Survey of Profit Sharing and 401(k) Plans from the Plan Sponsor Council of America (PSCA), there were several key points highlighted – but there are some interesting findings you might have overlooked.

Perhaps the most significant finding of that survey – the longest running of its kind – was a record employer contribution rate (5.1% of pay) and a total savings rate in excess of 12%, the highest percentage ever recorded in the history of the survey. Also noteworthy was that nearly three-fourths (73.1%) of plans now retain an independent investment advisor to assist with fiduciary responsibilities – up from 69.5% in 2016.

But here are some findings from the survey of plan sponsors that you might have missed.

There’s less ‘waiting.’

Once upon a time, the norm was to have participants wait a year before letting them participate in the 401(k) plan. There was administrative logic in that decision – after all, turnover rates being what they are, why go to the bother of setting someone up to contribute to the plan (and match those contributions) if they were only going to be around for a short time?

But the most recent PSCA survey finds that nearly half (47.2%) of surveyed employers allow for immediate eligibility, and more than half (55.7%) of the largest plans do. In fact, even among the smallest employers, more than a third (35.3%) let workers become participants immediately.

Not to mention that nearly 40% of plans provide immediate vesting for matching contributions.

Sponsors are making savings suggestions.

Nearly a third (31.2%) of plan sponsor respondents say they provide a suggested saving rate to participants, and for more than 4 in 10 that rate is 10% (28.5%) or higher (12.7%).

There’s a growing role for rollovers.

Just under 4 in 10 (39.4%) of responding plans say they actively encourage participants to roll assets into their plan (though that was somewhat less common among the largest plans). Little wonder, since more than 95% of 401(k) plan sponsors say they accept rollovers from other plans.

There’s a real ‘to or through’ target split.

More than half (55.4%) say their target-date fund goes “through” retirement, while the rest have embraced a “to” retirement glide path. Wonder if participants in those plans appreciate the difference?

Participant behaviors are being tracked.

Not surprisingly, and for any number of legitimate reasons, contribution levels are the most monitored participant behaviors. The vast majority (85%) of the largest plans do so, as do nearly two-thirds (62%) of the smallest. What’s a bit striking is that the second most monitored behavior – and one that held true against nearly all plan sizes (except the smallest, where it was third,after investment allocation) – was loan usage.

Does anything happen with this tracking? About half (45.4%) of plan sponsor respondents said they took action based on what they learned from monitoring participant behaviors.

Traditional success measures (still) matter most.

While more than three-quarters (84.8% of the largest plans) evaluate whether their plan is successful, the benchmarks used are fairly traditional. Participation rates are the most common (90.8% of all plans), with deferral rates (75.8%) looming large, but a distant second. Fewer than a third (31.4%) use income replacement ratios.

Many weren’t looking to make big changes.

More than a third (34.7%) planned no changes at all, and even more (39.9%) planned only “minor changes to the investment lineup.”

- Nevin E. Adams, JD
 
More information about the Plan Sponsor Council of America’s 61st Annual Survey of Profit Sharing and 401(k) Plans is available at www.psca.org.