401(k) Plans: Trick or Treat?


With Halloween fast approaching, now is a good time to ask your employees if they feel “trick” or “treat” best describes their retirement savings. Unfortunately, many people today find they haven’t saved enough to retire and must prolong their working years. This situation may leave some feeling “tricked” by the defined contribution system. However, these sentiments couldn’t be more wrong.

Nothing before and nothing since the creation of defined contribution plans has promoted more retirement savings by average Americans than the 401(k). I mean, $4.4 trillion is a heck of a lot of money! The truth is many people would not be saving for retirement at all if it were not for employer sponsored 401(k) plans.

401(k) plans are not a “trick.” What they are is “tricky.” They place retirement income planning on the shoulders of participants and some are failing miserably. In a 401(k) plan, all participants must decide:

• Whether and when to participate

• How much to contribute

• How to invest their money

• How to estimate their future retirement financial needs

• How to avoid the pitfalls of plan leakage

• How to protect their assets for a lifetime of income for themselves and potentially their spouse

Leaving all these choices in the hands of participants is tricky not only because of participant inertia (a well documented 401(k) plan phenomena), but also because most people really have no idea how to invest. And some, unfortunately, do not understand the devastating effect loans can have on their account balance over time.

Luckily, the 401(k) has the potential to offer many “treats” if used correctly with proper help and guidance. Automated programs like auto enrollment and auto escalation, combined with good qualified default investment alternatives (QDIAs), can help overcome these tricky elements and help participants enjoy the treats inside their workplace retirement plan.

Here are some of the treats designed to help participants meet their savings goals:

• Auto enrollment and escalation programs

• Tax-deferred contributions and compound earnings

• Employer-matching

• Professional investment education and advice

• Goal setting and retirement income planning tools

• Rollovers

• Target Date or Target Risk products and QDIAs

• Fee transparency and disclosure

Saving enough for a comfortable retirement may seem like a scary prospect for many employees, but it doesn’t have to be frightening. This Halloween, help your employees overcome 401(k) tricky elements so they’re not haunted by the ghost of “what could have been”. By focusing on positive outcomes, your employer sponsored plan will produce the retirement results you and your participants want and need.

For more detail on the advantages 401(k) plans can provide, check out the 401(k) Help Center.