Plan Sponsors Confront Dull But Critical 401(k) Issues
The recent TPSU Penn State Great Valley program with 38 engaged plan sponsors highlights the mundane yet important issues that they face, which resonate throughout hundreds of programs and thousands of attendees. As the recent elections highlighted, kitchen-table issues sometimes trump everything else. Yet the industry tends to focus on what’s topical, sexy or what drives revenue, which, while understandable, may not resonate in uncertain times.
So what are these dull but critical issues?
Loans
The bane of many administrators, loans are offered by 80% of plans, according to a Vanguard report, covering over 90% of eligible employees. Not offering them, plans fear, will cause some employees not to participate. Yet loan administration can be a nightmare, not to mention concerns that participants are misusing them, ruining prospects for a healthy retirement.
Emergency savings plans, or PLESAs, are strongly encouraged under SECURE 2.0, but only 1.3% offer them, according to a PSCA survey. When a plan sponsor at the TPSU Penn State Great Valley program asked why his advisor did not mention this option, the simple answer is neither the advisor nor record keeper makes money on them, just like HSAs and student loans. Plus, they can be difficult to administer, as plans deal with many more pressing issues.
360-Degree Payroll Integration
Without integration, the auto plan can be a nightmare, adding additional work and issues if a plan neglects to auto-enroll an employee. Payroll integration is mentioned at almost every TPSU program, either working or not working, and is key to the efficient administration of a plan—just ask any TPA.
It’s a mystery why all plans do not have 360-degree payroll integration, as most record keepers integrate with hundreds of payroll providers. It’s no wonder that ADP and Paychex have close to 300,000 plans and that fintech record keepers that partner with payroll providers are thriving.
Beneficiaries
Most plans struggle to get participants to name a beneficiary with no easy solution. One plan sponsor at the TPSU Penn State Great Valley program said she asks for it during open enrollment, with a few others indicating that their provider will not allow people to enroll or log onto their website if they do not.
Not Leveraging Record Keeper Resources
Providers offer a rich array of services, yet plans complain that they do not know about them or how to use them, many blaming their advisor. The industry spends billions on these bells and whistles but often does not lean into educating administrators, participants and advisors about them.
Plan Design
While the auto plan is generally well received, all plans and participants are not equal—some customization is needed; otherwise, artificial intelligence could replace advisors for this service. Plans with high turnover are concerned about creating small balance accounts. Many low-wage workers are living paycheck to paycheck.
One plan sponsor at the Penn State program said she thought auto-enrollment inhibited engagement. Others struggle to sell the benefits to senior management who feel like it is paternalistic.
Many have questions about whether they should allow workers to enroll immediately and their vesting schedule.
Education and Engagement
At almost every program, plan sponsors complain that employee education is not working (some indicate it is), with most unable to get a significant percentage of workers to engage, especially difficult with a remote workforce and younger employees. Increasingly, plans are looking to their co-fiduciary advisor in collaboration with their record keeper to offer holistic advice to all employees.
What Is Not Top of Mind
Investments are critical, but most plan sponsors focus on the QDIA, typically a target-date fund. Fiduciary liability is important, but most plans feel comfortable that their advisor and provider are helping to mitigate it.
While they could help solve problems, many plans do not know about or are not asking about PEPs, CITs, HSAs or student loan programs and are wary of private investments and retirement income, which they equate with annuities.
Front-line 401(k) and 403(b) plan administrators are juggling 10 jobs with dwindling resources and little to no education. Advisors and providers that tackle kitchen table issues will gain the confidence of clients and prospects to offer not top-of-mind but critical products and services like PEPS, CITs and retirement income.
