By Cyril Tuohy
After a period of retrenchment, retirement-plan sponsors are loading up again on 401(k) plans and features in an effort to attract and retain employees in an improving economy — good news for advisors who can help employers structure those plans.
Catherine Collinson, president of the Transamerica Institute and Transamerica Center for Retirement Studies, said there are five ways employers can improve their 401(k) offerings almost overnight:
- Adopt automatic plan features to boost savings rates
- Add professional account management
- Add a Roth 401(k)
- Extend retirement plan eligibility to part-time workers
- Address communication gaps between employers and workers.
Relying on results from the 15th Annual Retirement Survey released this week by the Transamerica Center for Retirement Studies, Collinson said many employers are implementing initiatives to spruce up their retirement plans.
“We’re seeing annual increases in the number of plan sponsors offering all of these things,” she told InsuranceNewsNet.
The survey of 751 employers was conducted between July 31 and Sept. 17 by Harris Poll on behalf of the Transamerica Center.
Between 2007 and 2014, the percentage of employers offering a 401(k) or similar plan increased to 79 percent from 72 percent, and sponsorship rates rose to 70 percent from 62 percent, the survey found.
Of the five retirement-plan initiatives, financial advisors can add value to three in particular: professionally managed services, extending eligibility to part-time employees, and addressing communication gaps between employers and employees.
Employers and employees remain divided over the perceived satisfaction of their employer-sponsored benefits.
The survey found that 95 percent of employers believed their workers were satisfied with retirement plan benefits offered by their company, but only 80 percent of workers said they were satisfied with their employer plan.
“The way I read that is that the employer and the employees are not talking to each other,” Collinson said.
While it is understandable that workers may want to keep their retirement preparations to themselves, it also makes sense for employers — if they are serious about attracting and retaining qualified workers and managers — to survey employees about retirement benefits, Collinson said.
Since the financial crisis, more employers have begun to offer professionally managed services as part of their employer-sponsored retirement plans in an effort to tailor retirement investment programs to the circumstances of their employees.
This is a huge opportunity for advisors, as plan sponsors will look to them to guide companies through due diligence procedures and to choose among a panoply of target-date funds, target-risk funds and managed-account services, Collinson said.
The survey found that 84 percent of retirement-plan sponsors offered a managed-account services option in which professional investment advisors decide where to invest on behalf of the plan participant.
Whether the plan advisor or the employer retains the fiduciary liability with regard to the funds and the investment advice provided “depends on the arrangement” between the plan sponsor and the advisor, Collinson said.
Fee disclosures required by the Department of Labor at the participant level can still be complicated, and employees should not hesitate to ask questions about fees from their benefits administrators and plan advisors, she said.
Another “tremendous opportunity” for advisors, she said, comes from the rise in part-time workers due to more baby boomers working longer.
While 79 percent of employers offer a 401(k) or similar plan to employees, only 49 percent of them extend retirement plan eligibility to part-time workers.
The survey found that 80 percent of employers with more than 500 eligible employees extended employer-sponsored retirement plans to part-timers, compared with 52 percent of companies with 100 to 499 eligible employees.
The reasons employers gave for not extending plans to part-time workers included impracticality, cost, and a lack of interest among employees, the survey found — and that’s where an advisor can help, Collinson said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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