Set it and forget it is not a best practice for retirement plan sponsors. If it’s been a while since you have given the plan some real attention, chances are strong that much has changed. Your employees–and their lives–have likely shifted, and so to have markets, products, services and investment options. Here are a few considerations.
Target Date Funds: Over-Weighted?
Given fiduciary obligations, an ongoing area for plan sponsor attention is investment options–and that includes target-date funds:
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 ( …That’s coming straight from the Labor Department). Particularly in view of recent market volatility, it’s worth (re)examining the asset allocations – and perhaps most significantly those that are applied to target dates that are near-term – and ask yourself – should an individual within five years of retirement have that much invested in those options?
Target-date funds are an especially critical area for fiduciaries to reassess, given that so many 401(k)s have made them the qualified default investment alternative (QDIA) of choice. As experts caution: “The vast majority of those assets are still under the purview of an incredibly small number of firms – nearly all of which…appear to share very similar views as to what an appropriate glidepath is supposed to look like – and nearly all of which have embraced the notion that a target-date is little more than a speed bump along the “through” target-date glidepath.”
Improve Results: Auto-Enrollment
When employees are automatically enrolled in benefit plans, and must choose to opt out, they generally stay in, and start saving sooner than if they put off, or never get around to enrolling. In fact, research has found that automatic enrollment is more successful than “any type of education or advice.” Auto-escalation is also helping employees move the needle on their savings. Another step plan sponsors can take to increase the success of employee saving is to ensure that those who initially opt out of auto-enrollment have another chance to opt in:
There is a natural human tendency to apply change from a point in time forward, to apply a new approach in plan enrollment, like automatic enrollment only prospectively, to workers who join the company after the point in time at which it is effective, rather than retroactively. And sure, workers who have had their chance to enroll voluntarily may well, in their refusal to do so, have spoken their intent not to participate at a previous point in time. However, that was then and this is now. If they don’t want to participate, it’s easy enough to opt-out. But maybe they didn’t fill out that form the last time because they forgot to, because the investment menu was too complicated or intimidating, or maybe the valid reason(s) they had then no longer applied. Regardless, don’t you owe them the same opportunity that you are giving your new hires?
Plan sponsors have a lot more to do than sign off on forms they’re given: under the high standards of ERISA law, the fiduciary responsibilities of plan sponsors can be reduced, but never eliminated. Even with solid procedures, paid service providers and exceptional diligence, oversights happen. However, as a plan sponsor, one thing you don’t have to do is shoulder all the risk alone: armed with Colonial’s liability coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000.
At Colonial, a whole year of Fiduciary Liability coverage is less than a few dollars a day, and we even include Cyber Liability coverage to further protect you, your business and the retirement plan.
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