Employer Plans


Typical 401k Plans are Falling Short of Goals


401k plans were established and designed to fulfill two key goals:

  • 401kEmployees would build portfolios that would provide the paycheck replacement needed for a comfortable retirement, and
  • Plan fiduciaries would be protected from personal liability by following a compliance/procedure driven approach in management of the plan.

Unfortunately, experience and changing litigation and legislation in the 401k landscape show that typical plans fall short in achieving both goals.

It's going to be somebody's fault when the Baby Boomers can't retire.

A recent survey of human resource professionals found that 75 percent of the respondents are less than confident that their employees are ‘taking accountability for their own future.' Findings such as these have caused an increasing number of benefit attorneys to fear that 401(k) plan sponsors and fiduciaries with personal liability for plan results could be held responsible if their workers' retirement dreams do not materialize.

A lawyer-fiduciary's comments on the responsibility:

"Something has got to happen, because, in our litigious society, every misfortune is allegedly someone's fault so it's going to be somebody's fault when the Baby Boomers can't retire. I am the chair of our Retirement Plan Committee, so this concerns me a great deal, and I don't think we can go on just being passive plan sponsors."
 - Brian Fitzsimmons: Tucker, Ellis & West, Cleveland OH

These attorneys worry that the courts will decide that the most fundamental and important responsibility of a 401(k) fiduciary is to make sure that employees understand that:

  • Achieving retirement security is their responsibility and requires considerable savings (at the expense of current consumption) during working years;
  • How they allocate their accounts is extremely important;
  • Events beyond their control (such as their behavior of the capital markets and business competition) can wreak havoc on their dreams even if they do everything "right".

Education Has Missed the Mark

Study after study has shown that either these messages have not been delivered or have been delivered in a fashion that maximizes the likelihood of them not being read and/or minimizes their importance.

Dallas Salisbury of the Employee Benefit Research Institute maintains that the traditional approach to retirement education has totally missed the mark. He feels that, all too often, participants are misled into believing that achieving retirement security is easy.

Salisbury argues that asset allocation and the joys of retirement are emphasized when participants should be bluntly told that, unless their contributions are adequate, a comfortable retirement itself will be nothing more than wishful thinking. After all, "asset allocation is irrelevant if you have no money to allocate."