Top Questions 401(k) Plan Sponsors Should Ask Their Advisors
As the Department of Labor (DOL) increasingly focuses on missing participants, along with the industry’s general shift toward defined contribution (DC) plans that place more responsibility on employees to take control of their financial future, plan sponsors need to educate themselves and their participants on a variety of topics that will help increase overall retirement readiness.
From what I’ve seen in the industry, plan sponsors are asking some good questions and want to know how they can better help their plan and its participants – but I’ve also learned there are some things that may not be top of mind that they should be considering.
What are plan sponsors asking about?
- Legislation. With a recently reconfigured power structure in Washington, plan sponsors are asking about the potential legislation on the horizon. This legislation could affect the accessibility to retirement saving options for more Americans through wider use of MEPs and state-sponsored plans, and could also encourage plan sponsors to implement automatic rollover IRAs to keep participants connected with their funds.
- DOL concerns. Plan sponsors are increasingly curious about how they can combat the DOL’s concerns with missing participants and uncashed checks. They want to know more about how they can not only easily find missing participants, but also prevent them from becoming missing in the first place. This can be done by improving communication with their existing participants and utilizing specialized search services.
- A lurking recession. The yield curve is currently inverted, which typically means a recession is to eventually follow. Plan sponsors should be proactive in putting out education so their participants know how to react properly should a recession hit, instead of selling their retirement assets in a panic.
What should plan sponsors be asking about?
- Cybersecurity. Plan sponsors have become major targets for cyberattacks, but often don’t have the same level of cybersecurity as plan providers. Third party auditors can help plan sponsors apply a consistent set of standards to evaluate cybersecurity protocols.
- Emergency savings plans. Many plan sponsors lack awareness of payroll deducted IRAs as an option for emergency savings plans, often called “Sidecar IRAs”. If a participant experiences an emergency, such as a family member becoming sick or losing a job, they can use their Sidecar IRA funds to pay for expenses, while their 401(k) continues to accumulate and grow. More recordkeepers have been looking into this as a design element, so participants can have more flexibility.
- Search services. The DOL has been noticing more and more missing participants with balances of $5,000 or less in plans. Third-party specialized search services, like those offered by Millennium Trust, can help plan sponsors locate missing participants much more efficiently than if they were to do it themselves. Also, when individuals reach 70½ and cannot be located, plan sponsors can utilize these digital solutions to find these participants and allow them to take their distribution.
It’s important for advisors to not only be highly educated on the plan itself, but also with what is going on in the marketplace and how the market could affect design and implementation ideas. Plan sponsors can also get advice and learn more from their ERISA attorneys and at industry events put on by organizations like the Spark Institute (SPARK) and the Plan Sponsor Council of America (PSCA).
To learn more about how our services can help your plan, visit our Retirement Services webpage.
The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.