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Leading with a product?

Leading with a product?

| April 22, 2024

It was an interesting discussion on the concept of retirement income in 401(k) plans at the recent NAPA 401k conference. While this concept is familiar to those in the pension or defined benefit space, it started coming to life in 2013. Back then, there was a proposal to show a possible monthly income amount on 401k statements.

Fast-forward to SECURE 2.0 and the concept of an income number on a 401k statement and possible ways to pay a monthly income are very much front and center. The discussion I was listening in on seemed to center on what products or solutions were available in the marketplace and what ones might be coming down the pipe.

My view could be a bit of a contrarian view but I actually prefer not to lead with a product or an investment solution. Instead, I like to understand what is the problem (if there even is one) and what are we trying to solve. Only then would I consider a possible investment solution. Humor me for a moment with an example.

At the recent NAPA 401k summit, many advisors agreed by a show of hands that auto-enrollment is a good idea. It was a bit surprising then to hear the head of Microsoft's 401k plan offer a different view. He is not a fan of auto-enrollment because it would actually lower the contribution rate in the 401k he oversees. He stated that he believed average contribution rates to be around 12%. An auto-enrollment of even 6% would possibly hurt the plan's average contribution rate. Interesting, no?

My point is this. When considering retirement income solutions in a 401k plan, it is best to know what they are designed for and what type of demographic/ company type they might work best in. If your company does not fit the demographic type or if your company is not a "best fit", it might be good to pause and ask if this type of solution would work in your 401k.

Stephen Covey says it best in his seminal book, "The 7 Habits of Highly Effective People". "Begin with the end in mind". Is there a problem? If no (similar to Microsoft), then there might be nothing to do. If there is a problem in the 401k, what is that problem and what possible solutions might there be? I prefer this approach to leading with a product.