By: Michael meyers, partner, mountain hill investment partners
F
rom the Department of Labor website: Plan sponsors and other fiduciaries have a solemn responsibility to protect the interests of the workers and retirees in their benefit plans. That’s a pretty broad definition. There are specifics of course, but still, what does this really mean? If you’re reading this, you should know you’re a fiduciary, but what’s next? How can you improve, and where is regulation potentially going in the future? Facts: Employees are saving a higher percentage of their compensation than ever in their 401ks, and a growing number are taking advantage of the opportunity to save in a Roth 401k option. According to new data from the Plan Sponsor of America (PSCA), part of the American Retirement Association (ARA), plan participant deferrals rose in 2018 to an average of 7.7% of pay, up from 7.1% in 2017 and 6.8% in 2016. PSCA’s “62nd Annual Survey of Profit Sharing and 401k Plans” also found company contributions coming in at an average of 5.2% in 2018, raising the average combined savings rate to 12.9%, up from the previous year’s record finding of a combined savings rate of 12.2%. Furthermore, the survey found that nearly a quarter of participants (23%) elected to contribute to a Roth when given the opportunity, up from 19.5% in 2017 and 18.1% in 2016—a 30% increase in just three years! The Puck is Moving: This is good news, but shouldn’t come as a surprise. Companies have long been moving away from pension plans, and many of those that still exist are underfunded or on the brink of failure. So, in the words of hockey legend Wayne Gretzky, “Skate to where the puck is going, not where it has been.” You’ve provided the plan; the fiduciary duties have been handled, but there’s more to be done. If you’ve been paying attention, it should be clear that regulations won’t be relaxed. As a 401(K)-plan advisor, I see the DOL “puck” going to employee education and financial well-being, e.g., making sure that employees have the tools to make the most of their retirement plan. According to ENR’s recent article in the December 2019 issue, “AGC Contractors Expect Demand To Increase in 2020, Still Worry About Labor Shortage,” “Three out of four contractors surveyed plan to bolster their company's head count in 2020.” If you want to be completive in the hiring landscape, a 401(K) coupled with a robust education and support system is imperative!
Think of 401(K) employee education like you might think of safety training. You can provide workers with all the appropriate tools to be safe, but without education and reinforcement, you won’t foster a safe culture and accidents will happen. Along the same line, simply providing employees with a great 401(K) doesn’t mean they’ll experience great outcomes. In large part, employees who are offered a 401(K) know how they work and why they’re important (the deferral data certainly suggests that), but they require education and advice to make decisions that will provide a roadmap for a financially healthy retirement. In my view, positive outcomes for employees’ 401(K)s begin with an education program coupled with unbiased, one-on-one advice from a financial advisor. Participants have several decisions to make in the 401(K): How much should they defer into the plan? Should they contribute to the traditional 401K, Roth 401K, or both? And what investment options should they select? These decisions are not easy for employees, and employers are not equipped to answer them, nor should they. They require careful consideration and the help of an advisor who offers individual support. For one on-one-advice and support to be meaningful, advisors should be asking your employees questions like:
Financial overview
your 401k is powerful equipment! train employees to use it safely
• Do they have enough savings accessible to them to cover emergencies? • If they are married, does their spouse work and contribute to a retirement plan? • Do they have any debt? • What is their risk profile? • Do they understand the investment options offered to them? The answers to these questions give the advisor a blueprint to provide the appropriate advice for that individual. For example, giving advice to an employee that they should max out their contributions to the plan without knowing that they have little to no savings to cover unforeseen expenses would be inappropriate. That employee should be building an emergency fund and revisiting 401(K) contributions later. It seems counterintuitive for an advisor to suggest that an employee NOT contribute to the plan, but sometimes it’s the right thing to do in order to improve their overall situation. To address this, I recommend that plan sponsors coordinate semi-annual group employee meetings (mandatory), arranged in conjunction with the plan advisor, followed by availability for individual one-on-one meetings. Advisors should be available to employees on an ongoing basis, but in my expe-
Utility & Transportation Contractor | february| 2020 7
