It happens often in sports. After a particularly brutal game, the fantasy league hero, a member of the losing team, cites his just-garnered outlandish statistics and brags to a player from the winning team. And that member of the winning team shoots an impertinent glare and curtly replies, “Scoreboard.”
Sadly, such statistical aficionados inundate the 401(k) industry. From regulators to service providers to naïve plan sponsors to the mass media itself, there's an overemphasis on those infamous metrics of fees and investment performance. Easily measured isn't the same thing as meaningful. At the end of their careers, employees don't care about fees of other metrics, they only care about one thing: “scoreboard” or, in this case, their own personal retirement readiness.
This doesn't absolve the 401(k) plan sponsor from ensuring the plan gets appropriate value for the fees paid or that the investment selections have been made with sufficient due diligence. Those are still critical items within the realm of their fiduciary duty.
At the same time, if a plan sponsor focuses only on fees and investments and leaves a plan that fails to incorporate the more generally accepted recommendations from the field of behavioral finance, is that really in the best interests of the employees? If the plan has low fees and great investments, yet doesn't do enough to encourage savings, does it still count as a benefit to an employee who doesn't participate?
The letter of ERISA law doesn't require a plan sponsor to include auto-enrollment or auto-escalation in the plan design. Neither does it require the plan's investment policy statement limit the number of investment options to, say, six (a number one research study said represents the best number for “choice”). If anything, plans that include some of these features can be penalized if they're not careful.
What does this have to do with retirement readiness and why should this scare plan sponsors?
Think about it. In an overly litigious society where personal responsibility is not demanded, how hard is it to imagine a future class-action against a plan sponsor that didn't use auto-enrollment/escalation or, didn't periodically monitor their plan employees' retirement readiness—if only as a service benefit to their employees. You don't have to be sold on the paternalism implicit in “auto”-everything. You have to just want to do the right thing.
The technology exists today to do this, but it comes at a cost. Ironically, the undue stress on fees may be making 401(k) plan sponsors reluctant to engage service providers capable of measuring retirement readiness.
And this should scare the bejabbers out of plan participants. If not now, then when they retire and are finally ready to understand the significance of “Scoreboard.”
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
