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Is Your 401k Hurting Your Retirement?



Is Your 401k Hurting Your Retirement?

If you have decided that you want to get a 401K plan, you should ensure it’s the best it can be. 

Why be ok with getting less when your turn comes to milk your retirement?

The graph found below shows the historical chart of 401k assets, contributions, and benefits that were made from 1984 until the year 2009.


Plansponsor Magazine states that a common trend among the best plans is that they are committed to success. 

They show this commitment by having an oversight that is incredibly high and by partaking in government outcomes. 

These plans provide results that are not only strong, but are directly related to assisting people as they save for their retirement years.

Plansponsor was able to identify 29 firms within its report that have the  Best in Class 401K plans.

Some of the companies found on the list are as follows:

What makes a plan the top of the class?

How are you able to determine whether or not the plan you are on is up to par?

Luckily for you, the features you need to keep an eye out for are listed in the following sections.

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Does Your Plan Contain an Oversight that is Strong? What about its Practices for governance?

Sadly, most employees cannot measure the oversight and how it carries out the practices for management within their plan, according to Chris Carosa. 

Chris Carosa wrote 401K Fiduciary Solution.

He also provides both industry professionals and plans sponsors with fiduciary consulting services and conducts some workshops aimed at providing education to employees.

If you could monitor this, according to Carosa, you would need to ensure that the sponsor for your plan was working with some different service providers who were operating independently. 

You would further want to ensure these providers had provided written acknowledgment that they are in a fiduciary type of role. 

You would also want to ensure that this written statement also included them saying that none of the products recommended by the company should pay any commission, contain any revenue-sharing arrangement, or have to pay any associated 12b-1 fees.

What Do Others Say About a Strong Oversight and Government Practices?

James Watkins III Stated that when a plan has both an oversight that is strong and strong practices of governance typically at least also have benchmarked fees, an investment committee, a policy statement for investment practices, or some IPS. 

He says that all of these were good starting points.

Watkins further stated that if he were participating in the plan, he would wish to look over the IPS personally to learn the methods and procedures in which benchmarking took place. 

He said that this is applied to both how the record-keeping and the administration fees took place, how the process of due diligence was used, and how the investment plan options were chosen.

How do You Measure Oversight and Government Practices?

Finally, Watkins suggested that it was important to examine how cost efficient the overall options for investment chosen by the plan was.

This included the impact all associated 12b-1 fees were having on cumulative fees that were being paid.

He stated that 12b-1 fees could quickly add up to be more than the total a rate that charged by the participant would require. 

This is because these costs are known to raise the problem of investors and their funds. 

This subsidizes record-keeping fees actually for anyone that is not investing in 12b-1 funds.

Watkins reported that the settlement by Mass Mutual that recently took place raised two critical areas that you should address.

There should be a cap for the per participant for the record keeping fee.

Some prohibition should take place for costs for record-keeping, and this should be based on the percentage of assets contained under the management.

He said that using an asset under management type of method could result in compensation that is unreasonable rather quickly as the option for investments in an investment grows.

Are the Outcomes for Retirement Readiness Strong Enough?

Is there a way for you to measure whether or not the plan you are on helps employees plan for their retirement years? 

Carosa says there is. 

The following chart shows how employees can tell if their plans assist preparing employees for retirement:


Carosa also stated that the company should provide education to employees that will encourage them to place their focus on saving their money instead of investing it. 

He says that no matter how sound you think your investment strategy is, or how sound it seems to be, you can still wind up with absolutely nothing when you are not saving your money. 

In contrast, he said that you could comfortably retire only acquiring average returns on investments when you have managed to keep enough of your money.

The chart found below shows real assessment as a multiple of retirement age annual pay when zero real investment returns are made on evaluations, and people work for forty years and then retire for 20.


Does Your Plan Make Quality Investments?

Remember Watkins from earlier? 

Yes, he was the one who was a fiduciary compliance consultant for the 401k plans. 

He stated that even when there are signs of high participation and deferral rates, this still does not provide you with a guarantee of retirement readiness.

He further states that the plan’s investment options need to have inherent value for auto-enrollment and other programs that are aimed at retirement readiness to be successful.

To be sure, check to see how far your plan’s features go toward satisfying the fiduciary duty of prudence of the project. 

The best-in-class plans will have features that make huge strides toward fulfilling this obligation.

Watkins states that as an ERISA attorney, he feels the primary criteria needs to be the quality of the options for investment that the plan provides. 

He says that this is so participants can diversify their retirement account properly so that they can maximize investment returns and minimize their risk for acquiring a significant loss.

He says that without it taking place, plan participants are highly unlikely ever to reach the retirement readiness level they should be at before they retire.

Limit the Options for Investment

It is also important that your plan only offers a limited amount of options for investment.

Watkins says that he typically tells his investors that they should begin by choosing a solid core of investment options that are low-cost and well-diversified. 

He tells them that they need to go with the 404c three prong approach and pick one that is based on equity, on that relies on fixed-income, and one that is a money-market fund.

He says if these options were not available for 401k, the participants need to be asking for this money to be added to the plan. 

He says that he has seen it happen too often that a plan has 50 to 60 investment options, and many of them contain duplicate funds.

Watkins says that the concern in having too many options for investment comes when participants are faced with too many choices. 

He says that they can become confused or frustrated, and more times than not, just walk away and give up altogether.

Carosa agreed with Watkins on the points mentioned above. 

Carosa said that a good plan would only require a few sound investment choices.

 He says they can do this either by offering fewer options in the way of investment or by providing few choices in the way of categories you can choose for investments.

Does Your Plan Assist Individuals in Succeeding Financially?

You want to ensure that your plan is doing more than just helping individual’s save money for their retirement. 

It’s important that your plan helps people succeed financially once they finally reach their retirement years. 

However, Carosa states that this fact may not be fundamental when looking at a pension plan.

Carosa also says that a company may not want to place the burden of liability that can come with giving bad financial advice, or even providing good advice that someone does not carry out properly by an employee who has not necessarily received the right amount of training on the subject.

Watkins said that education was the key element when it came to assisting participants in the plan to be able to succeed financially during their retirement years. 

He expressed that he has seen far too many educational programs come about and be nothing more than a marketing session that is glorified and put on by the service providers for the plan, in his experience.

Watkins said that a good plan should provide information about areas of personal finance that are relevant to the program. 

He says that to him education programs that are meaningful and cover some different financial topics are the key element to success.

Mercer, Fidelity, and several other firms have all launched financial wellness programs in the past few weeks. 

These programs have focused on assisting participants in their plans to look at their personal finances and contemplate making necessary changes or assisting them in critical decisions that needed to be done.

Does Your Plan Contain Features that Makes Achieving Your Savings Objectives Easier?

Carosa says that if your plan has auto-enrollment that is a good sign. 

He states that a better sign, however, is if the program also offers both auto-escalation and quicker vesting periods.

Watkins, on the other hand, says that having both auto-enrollment and auto-escalation might not be all it takes. 

He said that he is not positive these qualities are in the best interest of participants for the plan if options for investment are inadequate when it comes to the overall performance and cost efficiency of these options.

He said to look back at the issue surrounding the need for investment alternatives that are prudent. 

Without it, the participant of the plan is probably not going to reach their goals.

How Did Your Plan Fair?

When reading the information above, where did your plan fall? 

If it wasn’t one of the best-in-class plans, do you have any ideas on how you can make your plan better? 

What are the weak points for your program?

Carosa stated that some individuals might be required to find a different employer if they want to receive a better plan.  

He further asks whether figuring out how to live with a plan that is below average once retirement comes or finding new employment is more traumatic for a person.

What Is the Best Thing You Can Do for You?

No two people are exactly alike. 

For those who are actively saving for retirement, the most important thing they can do is sure that the decisions they make are solely based on what is best for them.

Carosa states that employees need to be concerned with both maintaining and continuously improving the personal saving methods they currently have in place. 

He says that this is true whether working inside or outside of a retirement plan issued through a company. 

Employees should focus on the things that they can control.

The graph shown below illustrates statistics around retirement and at what age individuals typically retire in the United States:


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