5 Fiduciary Resolutions for 2025

This is the time of year when resolutions for the cessation of bad behaviors and the beginning of better ones are in vogue. Here are five for plan fiduciaries for 2025.

1. Develop a (plan) budget.

Most financially-focused New Year’s Resolutions focus on spending (less) or saving (more) —and the really thoughtful ones do both — all tied around the development of a budget that aligns what we have to spend with what we actually spend.

I expect that most, or at least many, plans also have a budget when it comes to the expenditures that require corporate funding.  Less clear is how many establish some kind of budget when it comes to what participants have to spend.  Now, granted, what they pay will vary based on any number of …variables — but an essential part of ensuring that the fees paid by the plan (for the services provided to the plan) is knowing how much — and for what.

At some level that means not only keeping an eye on things like expense ratios, the options with revenue-sharing, and the availability of alternative share classes (or options like CITs) — but it also means having an awareness not only of the plan features, but the usage rates of those plan features.

Let’s face it - when it comes to retirement plans, there often IS a direct link between spending less and saving more.

2. Check-up—on your target-date fund(s).

Flows to target-date funds (TDF) have continued to be strong — and little wonder, what with their positioning as the qualified default investment alternative (QDIA) of choice for most 401(k)s. That said, the vast majority of those assets are still under the purview of an incredibly small number of firms — with glidepaths that are not nearly as dissimilar as their marketing materials might suggest.

A TDF is, of course, a plan investment, and like any plan investment, if it fails to pass muster, a plan fiduciary would certainly want to remedy that situation, including removing the fund if necessary (don’t take my word for it — that’s coming straight from the Labor Department). 

That said, TDFs are frequently, if not always, pitched (and likely bought) as a package. While each fund in the family is reviewed separately, and certainly should be, breaking up the set certainly carries with it a series of complicated consequences, not the least of which are participant communication issues and glide path compatibility. Not that those can’t be overcome — and not that those complications would be deemed sufficient to retain an inappropriate investment on the plan menu — but it doesn’t take much imagination to think about the heartburn that might cause.  However, and once again – the Labor Department has suggested that action might be appropriate.

The reasons cited behind TDF selection run a predictable gamut; price/fees, performance (past, of course, despite those disclaimers), platform (as in, it happens either to be their recordkeepers, or compatible with their program) — and doubtless some are actually doing so based on an objective evaluation of the TDF’s suitability for their plan and employee demographics.

Whatever your rationale, it’s likely that things have changed — with the TDF’s designs, the markets, your plan, your workforce, or all of the above – oh, and there might now be a more personalized managed account option. 

The time to consider a change is before you are forced to do so.

3. Pump up - the default rate in your auto-enrollment plan.

While a growing number of employers are auto-enrolling workers in their 401(k) plan (likely even more with the new provisions in SECURE 2.0), one is inclined to assume that nearly two decades after the passage of the Pension Protection Act, if a plan hasn’t done so by now, they likely have some very specific reasons.

But for those who have already embraced automatic enrollment, those are plans who have (apparently) overcome the range of objections; concerns about paternalism, administrative issues, cost — some may even have heard that fixing problems with automatic enrollment can be — well, problematic (though things have gotten a little easier on that front).

There has been movement here over the year s— indeed the most recent PSCA survey found that half of the plans with automatic enrollment set the default deferral rate high enough so that participants receive the full possible company matching contribution (another 10% set it above that rate). More than a third now have a default rate of 6% - or higher!

4. Set goals for your plan (designs).

The mantra about retirement benefits has always been that they exist to help attract and retain good workers. More recently, a reimagined emphasis on financial wellness has offered some nuance to that — to provide better levels of engagement while they are working, to forestall the “distractions” (and potential malfeasance) that financial stress can engender, and ultimately to help workers retire “on time.” These goals are not inherently incompatible, but at any given point in time they require differences in communication, education, emphasis, and potentially program design. 

There is, by the way, a sense of a shift in such things. While the primary goal of participant education has historically been to increase participation rates, the Plan Sponsor Council of America’s 67th Annual Survey of Profit-Sharing and 401(k) plans notes that in 2023 that shifted to increasing financial literacy of employees — cited by 83.6%, and cited as the top priority for more than a third of survey respondents. 

If you haven’t revisited those objectives in a while — or, heaven forbid, have never done so — there’s no time like the present for a reset. After all, as Yogi Berra once commented, “If you don’t know where you’re going, you might wind up someplace else.”

5. Do your homework

Whether you lead a plan committee – or are “just” part of one – it’s important to be prepared.  ERISA requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are SOLELY in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about such matters.  Even if you (just) serve on a plan committee, you are also held to that standard.  Legally, you have personal financial responsibility for those decisions – and that motivation alone should provide the requisite focus on preparation. 

That said, ERISA does not require that you make those decisions by yourself—and, in fact, requires that, if you lack the requisite expertise, you enlist the support of those who do have it. 

But you’ll help them – and help yourself – and help the plan participants – if you do your homework BEFORE the committee meeting.

• Nevin E. Adams, JD

A New Fiduciary Standard?

Resistance to retirement plan innovations (like automatic enrollment) have long been excused as being “too paternalistic” – but there might be a better standard.

We’ve all heard it – concerns that imposing certain default choices on participants (and sometimes plan sponsors) are, however well-intentioned, intrusive and demeaning. Generally speaking, such concerns aren’t challenged – we “get it,” after all – most of “us” are do-it-for-myself types.

Of course, most participants aren’t – and there’s plenty of anecdotal evidence that workers, and particularly younger workers, WANT that kind of proactive support from their employer.

All of which calls to mind a new standard – one first (to my ears, anyway) articulated in the Nevin & Fred podcast by none other than Fred Reish. See, Fred was talking about explaining to his daughter what a fiduciary was – and she quickly grasped the concept, applying it to her mother and her support for her kids in looking out for them, and their best interests. It’s something I suspect just about every mother (or everyone who has had a mother) can relate – the notion that you’d do anything for your kids. No matter how old they (or you) are. A maternal standard of care, if you will.

How might that manifest itself in plan design? Well, immediate participation and automatic enrollment, for sure – though the latter likely at a rate higher than the 3% threshold that’s been established (first by tradition, then by law) as a minimum. And, depending on that starting rate, contribution acceleration – but one that follows automatically, not dependent on a separate affirmative election. These are not big stretches from where things stand at present of course – but it took the Pension Protection Act of 2006 to bring these structures to the fore – and years longer to lift those initial thresholds – years that higher levels of participation and savings could have been accumulating. 

Now, there were – and in some cases still are – legitimate reasons for plan fiduciaries to hold back on such things. For automatic enrollment, there were concerns that it imposed a financial decision that participants don’t need or can’t afford. There were (and are) administrative costs and burdens attendant with them all – and if there’s anecdotal evidence to suggest participant support, the concerns regarding negative reactions are just as real. And yet, how many have been left on the savings sidelines by those rationalizations?

Of late, I’ve been thinking about another plan design “hesitation” – retirement income. There’s little argument that those solutions are a need – but no real consensus that providing it is, or should be, a plan sponsor’s responsibility. As with the PPA, the SECURE Act provided encouragement; some much-needed (1) legislative structure and guidelines to provide fiduciary comfort with the selection and review of potential provider(s), (2) a safe harbor for the portability of benefits – and even (3) presentation on the participant statement of an amount designed to remind them of what their accumulated balance could produce in retirement income. In fact, those elements were specifically crafted to overcome the traditional objections to considering these options.

To date, the adoption rate – by plan sponsors AND participants – has not been what proponents would hope. Of course, those guidelines and provisions became law just ahead of COVID-19, and there have been a lot of other employment/benefit concerns that arguably, and even rightfully, took precedence. Participants are not, in fact, asking for these features (at least not to their employers), and there remain real fiduciary and operational concerns remaining, even with the guardrails. 

That said, I wonder if it’s not time for plan sponsors to take a more “maternal” approach to plan design – to consider anew – but still prudently and thoughtfully – plan designs like retirement income – to do more than just what the law requires, but what those whose interests they are charged with considering – need. 

I suspect it’s what Mom would do.

- Nevin E. Adams, JD

‘Likely’ Stories

It is customary when sharing (or reading) the portents of a survey to focus on the actions that respondents say they have, or will undertake. But what about the things they say they will not do?

Human beings gravitate toward “norms,” of course. Plan sponsors, certainly those conscious of the personal liability that accompanies those responsibilities, can hardly be blamed for seeking the behavioral norms of their profession, drawing comfort from the collective movement of the “pack,” particularly with new and/or controversial ideas.

Large ‘Charge’

This past weekend I was reviewing Alight Solution’s 2019 Hot Topics in Retirement and Financial Wellbeing report. But, while the positive trendlines on things like financial wellness were interesting, what struck me in reviewing this particular survey were the (relatively) strong percentage weighing in on things they said they were notlikely to do, including:

• evaluate phased retirement alternatives (66% not likely to do)
• offer qualifying longevity annuity contract (QLAC) – 86%
• facilitate purchasing annuities outside the plan as options for plan distributions – 85%
• reduce the number of loans available – 86%
• allow terminated participants to continue loan repayments to reduce frequency of loan defaults – 67%
• offer student loan repayment assistance – 48%
• measure employee perceptions and/or suggestions for benefit improvements – 30%

Not to mention the more than half (53%) who said they were not likely to address lifetime income, a similar 51% were not likely to show projected health care costs in retirement projections, not to mention the 39% who were not likely to discourage cashouts, or the quarter (25%) who were not likely to do anything about minimizing leakage.

Additionally, 25% (up from 21%) had no plans to implement initiative to address the retirement savings gap, 27% (up from 25%) were not at all likely to project the expected retirement income adequacy of the population, and 29% were not at all likely to “offer services, tools, or education campaigns on debt management.”

‘Not’ Likely

While the survey cited an impressive two-thirds of surveyed employers responding they are very likely to take steps in 2019 to create or focus on the financial wellbeing of their workers in ways that go beyond retirement savings – and even though this percentage grew from 30% in 2014 to 65% in 2019 – fully one in eight of these very large employers said they were not likely to create a broad financial wellbeing strategy. And there was the 1 in 10 who said they were not likely to recognize retirement readiness.

It has, of course, long been accepted wisdom that trends among larger employers are instructive in anticipating movements down market – and, in fact, on many things it has been (a notable exception: automatic enrollment, which, a decade after the Pension Protection Act’s implementation, among smaller programs significantly lags adoption by larger plans). Mind you, this survey is based on the perspectives of not just large employers – but very large employers – that employ, on average, 44,500 workers – and 17,000 even at the median (although 2% of the respondents had less than 1,000 workers). Consequently, those trendlines might be meaningful for the plans with which you work (particularly larger employers) – then again, they may not.

More than that, one should, of course, be careful in reading too much into trendlines from one period to the next – it’s rare that the survey respondents in one period are identical to those in another, and thus the difference – be it positive or negative – but particularly when the jumps are large – might be nothing more than what one group of employers say they will do versus a completely different group at a different point in time.

Caution is also warranted in reading too much into statements regarding planned, or intended, actions. While they’re doubtless an accurate assessment of planned undertakings at the time, we’re all very aware of how often those good intentions get derailed by any number of unanticipated events.

That said, I’d argue that in contemplating future trends, there’s merit in spending as much time looking at what plan sponsors say they aren’t likely to do, as we do the possibilities.

- Nevin E. Adams, JD

3 Ways to Get Your Automatic Enrollment Plan Out of its Rut

Inertia is a powerful force in nature, and in human behavior. Even the most proactive and engaged plan designs (and plan designers) can, over time, slide from being in a groove to being in a rut.

Here are three ways to reinvigorate automatic plan designs.

1. Auto-enroll all Eligible Participants

Over the past decade a growing number of plans have embraced automatic enrollment, in the process not only simplifying and streamlining the process, but also expanding the number of individuals who are saving for retirement. These days, new hires, regardless of their age, are routinely defaulted not only into the plan itself, but also into some type of qualified default investment alternative, whether it be a managed account, target-date fund, or balanced fund.

However, those who have been employed for some time are often not accorded that convenience. Instead, perhaps because they are presumed to have previously made a decision not to participate, it is assumed that if they were to have changed their mind, or have changed circumstances, they would take it upon themselves to enroll on their own. Or perhaps in some cases, the very success of automatic enrollment gives pause because adding all those existing workers to the plan (along with matching employer contributions) brings with it financial consequences.

Regardless, and certainly if the plan has had automatic enrollment in place for new hires for a time, the better way, it seems to me, is to offer the same opportunity to all eligible workers.

2. Auto-escalate Employee Contributions

While there is evidence that this is changing, for nearly as long as there have been automatic enrollment plans (and it goes back to the early 1980s at least), the default contribution rate has been 3%. Now, regardless of how that became the default of record, eventually becoming ensconced in the auto-enroll safe harbor of the Pension Protection Act of 2006, there’s one thing on which nearly everyone will agree: a 3% rate of savings is almost certainly not enough.

Having embraced the automatic enrollment design (and, with luck, extended that to all eligible workers), you can make automatic enrollment better by helping participants save more by automatically increasing their rate of savings by 1% or 2% per year. There is some evidence that, with a three- to four-year lag, plans that have adopted automatic enrollment do move on to add auto-escalation as an option. But think of the missed retirement savings and security in the interim.

3. Reenroll at Least Once – and Maybe More

A common practice in moving from one recordkeeper to another has been to “map” similar fund options from the old platform to comparable (if not identical) funds on the new platform. In recent years, this mapping process has been improved by not just copying over existing fund choices (which may not be optimal, and may not have been reviewed or updated in a long time), but by reenrolling everybody in the plan to an age-appropriate asset allocation fund, such as a target-date fund.

Reenrollment has some logistical and communications issues, of course. It is a bit like moving every year, and if not nearly as complicated (or costly) as actually changing recordkeepers, it can be challenging to explain, particularly to participants who themselves have slipped into a rut. And you might well be advised to leave participants who have voluntarily elected to opt out of the reenrollment once (or twice) where they elected to be.

But if as a plan sponsor/fiduciary you have liability for the fund choices participants have made (and, outside of a 404(c) safe harbor, you do), wouldn’t you want to take advantage of the opportunity to help participants invest their retirement savings in a fund that is overseen by professionals, rebalanced on a regular basis and invested with some sensitivity to their retirement timing?

Or, as the foregoing suggest, at least have a process in place that not only reminds them of the advantages – but nudges them toward a better result.

- Nevin E. Adams, JD

See also:

• Is Automatic Enrollment Still Going… or Slowing?
• 3 Things You Should Know About Automatic Enrollment
• Are Auto Engagements Over?

Commit, Meant

Much to my surprise, my son went to prom this weekend.

Now, I realize that a lot of kids go to prom—and I also realize that more don’t go than is generally appreciated by those who do. But my son, who at present isn’t in a relationship (and certainly not one serious enough to make prom attendance a “requirement”), has long been of the mindset that prom was just a lot of “bother,” and an expensive bother at that.

Having committed himself to this event, however, we of course had to contend with all those things that constitute that “bother”: renting a tux, selecting flowers for his date, etc. Later there emerged items like the expectations around the table at which (and with whom) he and his date would sit and the gathering(s) beforehand—and afterwards. For the very most part, he dealt with each new “decision” calmly, though as time went on, you could see him taking deep breaths as he contemplated just how much more of this “bother” he would have to endure (girls seem to have a lot more tolerance, if not enthusiasm, for the social “nuances” of such occasions). As for his Dad, I wondered if he would have gone along with the idea in the first place had he known just how “complicated” the process would become.

Setting up a retirement plan is not, generally speaking, a front-burner item for most employers, particularly among those at the smaller end of the market. They have their hands full just staying in business and making a profit. It’s not that establishing a workplace retirement plan is a “bother” exactly, but it’s one of those decisions that brings with it a series of other, related decisions—decisions
that have to be made not just once, but reviewed and remade on an ongoing basis. In my experience, this is not always fully appreciated by employers (many of whom it would seem would really just like to set it (up) and forget it). Little wonder, then, that those who work with them to help them fulfill those responsibilities and make those decisions frequently wind up feeling like some kind of glorified “nag,” constantly prodding and reminding plan fiduciaries of the things to which they need to attend.

Ultimately, the decisions required for my son’s prom could only be postponed and/or ignored for so long. At a certain point, it was simply too late to worry any more about tux and/or tie color, corsages, and/or driving arrangements. And, as it turned out, doubtless in no small part because there was a date certain, all of the necessary decisions got made in time (though a couple seemed more or less ad hoc and at the last minute).

For plan sponsors, the issues are generally more complex: Suboptimal fund menus can live on almost indefinitely, plan design changes can nearly always be put off in perpetuity, and as for fee and/or provider reviews—well, unless there’s a fire, the intermittent “smoke” is fairly easily ignored. There is, after all, no prom night, no single date on the calendar by which everything needs to be in order. Plan sponsors inclined to put off till another day those hard and/or complicated decisions can often do so (and do so often).

However, those who choose not to “bother” with such decisions probably shouldn’t have bothered with setting up the plan in the first place.

—Nevin E. Adams, JD