Starting Point

This excellent article expresses Fred’s ideas about the direction of 401(k) plans as they evolve beyond automatic enrollment designs. Fred begins with the premise that 401(k) “Savings” plans have now become 401(k) “Retirement” plans because they are the sole retirement plan for most Americans. He states that ERISA requiresplan fiduciaries to act for the exclusive purpose of providing adequate retirement benefits. Further, fiduciaries must focus on the actual benefits being produced by the plan as opposed to its features and services. He admonishes fiduciaries acting as prudent experts to know whether or not their plan is providing adequate benefits and if not, determine why and take prudent steps to improve its performance. The article draws parallels to a defined benefit approach as being appropriate for determining whether adequate benefits are being provided or not and communicating appropriate funding and deferral rates to participants to meet those obligations.
Starting Point (continued)

The Retirement Analyst treats each participant account as its own defined benefit plan. We determine the account balance required at retirement (goal) and the account balance required each quarter. We calculate the expected income from all known sources and compare it with an inflation adjusted ending salary to determine the replacement ratio. We compare expected return and risk (based on each participant’s ending account balance by fund) with actual return and risk (personal internal rate of return). If there is an expected funding gap we determine the required contribution increase (both one-time and in steps over time) and required return for each participant.
Starting Point (continued)

After calculating these metrics, our unique Sponsor Report provides the required insight plan fiduciaries need to know whether or not their plan is providing adequate benefits, determines why or why not, and enables them to take prudent steps to improve its performance. This report is designed to demonstrate “statistics of success” so sponsors and vendors can quantitatively measure improvement in participant communications and education.

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