Tag Archives: 401(k)

A personal touch enhances 401(k) plan

One telecommunications company seeking an upgrade of its 401(k) plan’s design and administration determined that Milliman was able to provide them with the type and quality of services needed. Milliman consultants offered the company a three-pronged solution to address several operational concerns related to their 401(k) plan. The case study entitled “Service is in the eye of the beholder” by Dominick Pizzano highlights the approach.

Here is an excerpt:

(1) Plan design revisions. Milliman’s analysis of their situation revealed that several of the ongoing administrative burdens could be addressed through amending the plan. Suggested revisions included (a) removing the joint and survivor annuity requirements which had been included and continued in the plan even though by law the plan was not a type of plan that required such annuities and neither the firm nor participants had expressed any interest in using these payment options; (b) increasing the 401(k) deferral limit which had never been modified to reflect the higher limit that went into effect with a past law change; and (c) adding a $5,000 mandatory cash-out threshold. Milliman proposed amending the plan to incorporate these revisions.

(2) Implementing a more service-oriented administrative approach. There were several operational areas (e.g., loan applications, withdrawal requests, and qualified domestic relations order determinations) where the previous provider did not assume responsibility. Milliman assured the organization that if they made the switch to Milliman, they would be relieved of such tasks in the future as these services would fall within the scope of Milliman’s responsibility.

(3) The existing 401(k) plan currently offered participants a choice of 34 investment alternatives, many of which were similar in asset composition, expense ratio, and average return so as to be redundant. Analysis of the breakdown by fund indicated that many of these funds were not being used by participants. Accordingly, the current array of funds was creating more confusion than appreciation with participants. Milliman proposed to have its investment consultants analyze the existing funds and replace them with a more concise set of funds that would provide sufficient diversification opportunities for participants by covering each of the investment categories previously provided but doing so with a smaller number of funds carrying lower expense ratios. In conjunction with this smart-sizing of the plan’s investment alternatives, Milliman also proposed to have the plan offer Milliman’s InvestMap as an alternative for those participants who did not want to assume the initial task of designing a unique investment portfolio as well as the ongoing responsibility of monitoring fund allocations. By choosing InvestMap, such participants would have an age-appropriate allocation mix created for them upon their selection with such mix proportionately rebalanced as they approached retirement.

Improving fiduciary practices and duties

In this case study, Milliman’s Katherine Smith discusses a comprehensive review the firm conducted of one organization’s 401(k) fiduciary processes. As a result, Milliman identified three specific areas where the plan administration and governance could improve: fee schedules, expense allocation, and fiduciary plan governance. The changes that were implemented enhanced the participant and plan sponsor experience and fiduciary best practices.

Five ways your retirement plan may change in 2017

dey-elizabethThe start of a new year brings with it reflection on the year that has passed and anticipation for the changes that may be coming. For retirement plans, this often means a look at new federal regulations, new technology, and new industry trends. The annual contribution limit to 401(k) plans is holding steady at $18,000 with employees age 50 and older able to save an additional $6,000. But here are five ways your retirement plan may change in 2017.

1. Focus will start to shift to financial wellness
By now, it’s common knowledge that many Americans aren’t adequately prepared for retirement. But rising costs in healthcare, student loan debt, and other areas make it difficult to plan for retirement expenses when people are struggling to pay for their current expenses. The use of creative tools and incentives may serve as ways to help improve overall financial wellness.

Beyond just offering access to educational programs for employees, covering topics such as how to set and stick to a budget or how to manage and pay down existing debt, employers may offer an additional incentive such as cash or gift cards to entice their employees to participate in financial wellness programs.

2. Financial advice must now be in your best interest
Effective in April and phased in through the remainder of 2017, all financial professionals who provide investment advice to a retirement plan will be considered fiduciaries, and bound by the legal and ethical standards set forth in ERISA. This means that the funds financial professionals recommend must be in the plan’s best interest, instead of funds that would be most profitable for the advisor.

3. You may see a shift in investment options
Gone are the days of dozens of investment options in retirement plans. Instead, plan sponsors are now choosing to streamline their investment lineups to make investing decisions less complex. There’s also a greater emphasis being placed on investment products that offer target date or risk-based options, taking much of the guesswork out of choosing allocations.

The development of robo-advisors for employer-sponsored plans (subscription required) will also help participants with portfolio allocation. These programs use complex algorithms to deliver investment solutions that were previously only available in the retail investment market, but are now making their way to employer-sponsored plans, offering personalized investment advice at lower costs than traditional human advisors.

4. You may be enrolled in your plan even if you don’t take action yourself
Research has shown that when new hires are automatically enrolled in their 401(k) plans, 91% participated, compared with only 42% voluntary participation in plans that don’t offer this feature. Many employers have already taken advantage of this type of plan design, and more are considering adding this feature to their plans. If a plan already implements auto-enroll, adding an annual auto-increase feature may be another way to improve overall retirement savings.

There has also been an increased interest in reenrollment, where employees hired prior to the adoption of the auto-enrollment provision are automatically increased to match the new auto-enrollment level. Any combination of auto-enrollment, auto-increase, or reenrollment can be useful in encouraging retirement savings for participants who may not otherwise contribute.

5. Your plan may be going mobile
Most employer-sponsored retirement plans have some sort of online portal where employees can check balances, view performance, and initiate transactions. However, people are often on the go and may not have access to a laptop or computer—but most usually have access to a smartphone. Development and enhancement of mobile apps will be a focus of many retirement plan providers as the demand for mobile access increases.

There will also be an increased focus on offering a comprehensive overview of retirement readiness. Many retirement plan providers will continue working on offering tools that allow participants to link external accounts for a big-picture view of their overall financial positions.

Administering a 401(k) plan termination

There are certain circumstances that can result in a company terminating its 401(k) plan. Milliman’s Ginny Boggs was quoted in a recent Employee Benefit Adviser article discussing the steps involved with a 401(k) plan termination during the American Society of Pension Professionals & Actuaries (ASPPA) annual conference.

Here’s an excerpt from the article:

Until all assets within the plan are finally distributed the plan still remains in effect and cannot be terminated. During this time, Boggs recommends that advisers work with their clients on:

• Testing
• Distribution requests due to many participants wanting their money immediately and to assist with loan repayments
• Governmental forms and filings
• QDROs

Advisers should remind their clients to use up their forfeiture accounts through expenses, allocating to participants or offsetting final contributions

“You can’t have any unallocated assets going into plan termination and you do have to liquidate,” Boggs said. “You want to make sure the plan termination amendment encompasses everything that the plan document doesn’t already provide.”

Approach 401(k) eligibility provisions strategically

Employers who take a strategic approach to defining eligibility provisions in a 401(k) plan can contain benefit costs, recruit and retain talent, simplify administration, and comply with regulations. In his article “Making participants out of employees via eligibility,” Milliman’s Noah Buck answers six strategic questions that plan sponsors should take into consideration. The excerpt below highlights two of the questions.

To what degree is the plan used to attract and retain talent?
A law firm does not want highly sought-after recruits joining a competing law firm down the road because they can enter the competing firm’s retirement plan sooner. Employers relying partially on their 401(k) plans for recruitment should consider that quicker and easier access to the plan will be more attractive to those in their prospective talent pools.

Are eligibility and entry date provisions cost-efficient with respect to turnover and vesting?
An organization’s turnover rate and average employee tenure are important to consider. A restaurant chain employing high-turnover wait staff will save cost and administrative energy by requiring employees to work six months before entering the plan instead of requiring one month.

It’s also important to consider the plan’s vesting provisions. If the plan has immediate vesting, the employer matching contributions — meant to supplement long-term retirement savings — could be going right out the door to short-term employees who are allowed to enter the plan too quickly. Employers should consider structuring eligibility and plan entry provisions so employer contributions are more likely to stay in-house with longer-term employees.

Retirement income considerations

The latest issue of Milliman’s Benefit Perspectives features two articles that focus on 401(k) plans and retirement income. “Helping employers in their retirement: 401(k) decisions, decisions, decisions!” by Jinnie Olson explores options employers can implement to help employees access retirement savings. A second article, “Helping 401(k) plan participants calculate withdrawal rates in retirement,” by Matt Kaufman, focuses on calculating withdrawal rates in retirement.