Eyes on the Prize

There are many moving pieces and factors to keep track of regarding retirement plans and individual accounts. But two recent blog entries remind that despite the multiplicity of concerns and duties, it’s also important to keep one’s eyes on the ultimate prize and not forget the ultimate reason for having a plan and an account in the first place — the outcome.

“There is one simple and straightforward topic that has not been the subject of litigation, nor is it likely to be part of any IRS/DOL audit. However, it is critically important to the success of any retirement plan. Plan outcomes — how well or poorly the retirement plan fares in comparison with peers — is the missing puzzle piece for many retirement plan sponsors,” writes Michael Webb in “Retirement Plan Outcomes: The Missing Puzzle Piece,” a recent entry in Cammack Retirement’s “Top of Mind” blog.

Fred Reish, in his Forbes column “The Worst 401(k) Mistake,” strikes a similar tone: “In my opinion, the worst 401(k) mistake is the failure to focus on employee outcomes,” he writes. “The ‘outcome’ should be for employees to have enough money to retire with confidence and financial security.”

“Most retirement plan sponsors, particularly large ones, have spent quite a bit of time and effort ensuring that their plans can survive an IRS audit, DOL investigation, and/or litigation by closely reviewing investment arrays and fees,” says Webb. Reish, similarly, argues that the recent focus of plan fiduciaries has been on the costs of plan investments, and that “much of the attention of fiduciaries and employers has been on ‘funds and fees.’”

“This needs to change. The focus needs to be on the real-world role of 401(k) plans to enable employees to retire,” argues Reish. And Webb reminds retirement professionals that keeping outcomes in mind is “critically important to the success of any retirement plan.”

How to do that? Webb suggests asking several questions:
 

• How is the plan growing compared to its peers?
• What is the median participant account balance?
• How many participants are on track to retire on time with sufficient retirement income?
• Are participants who are not on course to retire on time with sufficient funds engaged with plan features in order for their situation to improve?

“A plan sponsor can have a best-in-class investment array and extremely low fees, but if the participants cannot retire on time because their retirement account balances are insufficient, then the whole purpose offering a retirement plan is defeated!” says Webb.