It’s on the lips of industry experts. Hundreds – perhaps thousands – of articles have referenced it. Academics have devoted untold hours researching it. And yet, it still pervades.
These conversations, commentaries, and studies focus on one simple word. Inertia. It explains much of the retirement industry and is responsible for more recent pushes for auto-enrollment and other employee nudges.
Typically, that word – inertia – is lobbed directly at 401(k) plan participants. Like a grenade, it has demolished retirement readiness for a vast swath of Americans, according to the experts.
And they’re right.
The sad truth is employees often do nothing when confronted with the happy prospect of securing their financial future through 401(k) plan contributions and matching funds. They simply squander the tremendous opportunity to participate, resisting change and allowing the status quo to rein.
Even when employees do make the supremely wise decision to participate in a 401(k) plan, experts still toss around the ‘inertia’ bomb. Why? These employees fail to reevaluate their deferral rates or rethink their investment allocations – even after years of participation in the plan, or after receiving a raise, or after encountering a significant life event.
Yet, in our opinion, inertia is an equal opportunity offender. It afflicts plan sponsors too.
Quite frankly, if some employees need a nudge to overcome inertia, our experience would indicate some employers need a giant shove to do the same.
We speak to a lot of employers. After learning a bit about their existing 401(k) plan and explaining our services and how we may be able to help, we often receive a standard response. “Thanks, but we are happy with our current provider.” Paradoxically, these same employers will unabashedly admit that they have not reviewed their plan in three, five, and in some cases, even 10 or more years. Hello, inertia.
Without question, the retirement plan landscape has vastly changed over those time periods.
Litigation in the industry has pushed mutual fund companies and retirement plan providers to reassess their fee structures, resulting in lower costs for 401(k) plans.
In the coming year, the DOL’s Fiduciary Rule will go into effect. This rule will effectively make most financial advisors fiduciaries for the 401(k) plans that they service. As a result, a multitude of broker-dealers are changing their fee structures. Being a fiduciary increases the potential liability of financial advisors, thus their new fee structure may be more expensive than previously.
When was the last time that the investments in the 401(k) plan were reviewed? They may have been meeting their benchmarks when they were added to your plan but are they still? Is your advisor actively looking at the performance of the funds?
As a plan sponsor, you are a fiduciary. That means you are the caretaker for your company retirement plan. You need to make sure that any changes, or lack thereof, are in the best interest of your employees.
By reviewing your 401(k) plan on an annual or bi-annual basis and making sure you are getting a good deal on the services offered by your plan providers, you are upholding your fiduciary obligation to your plan participants. It's not something you should take lightly, given that you can be held personally liable if something does go wrong in your plan.
Don’t let inertia infect you and your plan. It may not be deadly but it could be disastrous for you and your employees.