After 100 educational programs conducted by The Plan Sponsor University (TPSU) in a little over two years, it’s clear that few if any plans have adopted the “ideal plan” — even though the benefits are enormous and the risks are low. So what’s keeping employers from moving forward?
The “ideal plan” includes:
For a 30-year-old making $45,000, the results are profound: After 35 years, that employee would have just under $1.5 million in her account, compared with just over $500,000 under a “normal” plan. When these numbers are presented at a TPSU program, there is a collective gasp in the room.
So what’s the resistance? For auto-enroll, the concerns are complaints from employees, extra work and the fear of appearing too paternalistic. But almost every plan sponsor attending a TPSU session that uses auto-enrollment has reported very few employees complaining (less than 1%) and less work, not more. And paternalism is a hollow excuse — not only do most employees welcome auto-enrollment, some even expect it.
Costs are a real issue, ameliorated by the stretch match. But the worst case is that companies can just lower the match.
Though some HCEs might get hurt, a non-qualified plan may be the answer. The 401(k) plan is really most beneficial for middle income workers; and the “pain” of a lower match for HCEs is really inconsequential compared with the benefit of auto-enroll for others.
As we noted last month, the DC industry cares more about outcomes than plan sponsors do. This will continue until we can show the CEO the benefit of having a healthy DC plan. But assuming that the “ideal plan” does not increase cost, liability and work (arguably, it can lower the last two), what’s the real reason that only a handful of small and mid-sized plans are using it? It comes down to two simple reasons:
But if advisors want to maintain their margins, they have to go beyond fees, funds and fiduciary. Showing how the “ideal plan” can limit liability and boost company viability without increasing fees or work might be a good and relatively easy way for experienced advisors to show their value.
What’s your take? Start a discussion in the comments box below.