Today is 401(k) Day — and a great reminder for advisors to consider ways to help clients optimize their employer-sponsored retirement plans.
From reviewing contribution levels and investment choices to managing rollovers, advisors can help clients maximize the value of workplace plans in many ways. The need for guidance, especially for younger clients, is underscored by recent Fidelity research. A generational breakdown shows that baby boomers contribute 12.20% on average, while Generation Xers contribute 10.50%. Among younger professionals, savings rates drop off: For millennials, the average is 9%, and for Generation Z, it's 7.50%.
Sept. 10 marks the 30th anniversary of 401(k) Day, an initiative started by the nonprofit trade association Plan Sponsor Council of America to encourage workers to save for retirement, use workplace plans and increase contributions when possible. (Traditionally held the Friday after Labor Day, this year it was rescheduled to avoid coinciding with Sept. 11.)
"Rising living costs,
Automatic enrollment and escalation can be helpful, but individuals can still benefit from making decisions, the council added.
Below are five ways advisors can help keep clients' retirement savings on track.
Higher contribution rates associated with managed accounts
For advisors working with employer-sponsored retirement plans, managed accounts can drive more employees to participate and make contributions. Managed accounts provide personalized investment solutions,
Employees tend to contribute at higher rates when defined contribution plans use managed accounts, new research by Morningstar found.
When employers make an advisor available, employees might be more comfortable talking, while feeling reluctant to find an outside planner who might be sales-oriented, Daniele Griffith, director of tax operations at New York City-based tax planning platform April Tax Solutions recently told Financial Planning.
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To roll over or not to roll over
When a client leaves a job, it might be a good idea to roll over assets from the previous employer's plan
But first, there are pros and cons to consider, such as whether they want to take out a loan from the 401(k), which can't be done with an IRA. However, IRAs have more investment options. Fees won't necessarily be lower in an IRA, so advisors can help clients compare investment and administrative fees.
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Acting in the client's best interest in rollovers
When advisors make rollover recommendations, it's important to keep fiduciary duties in mind. The CFP Board recently issued guidance on the topic, including a reminder to advisors to clarify if they are offering general education rather than making recommendations.
If a client gives a direction to roll over assets, the advisor still has to indicate whether there is "information that would cause a prudent professional to determine that the rollover is not in the client's best interests," the board wrote.
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Consider alternative investments
The Department of Labor proposed a rule to give plan fiduciaries a safe harbor for choosing investments,
While some advisors have criticized the rule, it very well might be finalized. The public comment period ended June 1. If alts wind up being more widely available investment choices in clients' 401(k) plans, advisors will need to carefully evaluate suitability for clients' portfolios.
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Keep clients' children in the planning loop
In addition to helping clients with their own retirement plans, advisors can
"Often, I tell my clients' kids that the best place to start is the free money, and the free money is the 401(k) match," said Mitchell Kraus, who co-founded Capital Intelligence Associates with his father. "Even if you pick the wrong investment, if they're matching your money … you're still probably better off" than if you had not invested or not even saved those funds.
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