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Quick 401k Survey thoughts, Part II

Quick 401k Survey thoughts, Part II

| May 12, 2024

The 66th Annual Survey of the 2022 Plan Experience clocks in at 114 pages. Yes, it is chock-full of data, graphs, and tables. It might take quite sometime to digest all of it! But here is my second round of quick thoughts from it.

Vesting: 40.6% of surveyed plans offered immediate vesting in 2022 on matching contributions. This is down from 44.2% in 2021. Might this be an attempt by employers to retain talent/ stop the brain drain in the face of the Great Resignation?

As one CEO told me, the reason I can offer a match or profit sharing is due to my employees' efforts. They earned it. It is theirs. Still others tie the match to a vesting schedule.

I am heartened to see that 6-year vesting accounts for less than 16% of the vesting picture. A six-year vesting schedule can seem onerous in that changing companies is more common these days. Aside from my current practice, I am not sure I was ever at a company for more than six years. This could be a reflection of the banking industry I was in or perhaps me! In any case, I promise not to fire myself from Green Retirement.

Number of investment options: The average number of investment options in retirement plans has held steady at 21 over the past three years. This jives with my own experience. The Department of Labor mandates that plans offer a minimum of three investment alternatives, each of which is diversified and has materially different risk and return characteristics. Over my career, I have only encountered one plan that offered only three investment alternatives.

On the other side of the scale, you can imagine how handing an employee a long list of investments can literally cause them to take no action. What I counsel my plans is to chose an investment menu that reflects their employee demographics. And yes, all investments must be screened via defendable and repeatable process. If you count target date funds as one choice instead of ten or eleven out of the 21 total, I think you can present a fair summation of the investment universe without getting lost in the weeds.

Loans: On average, 82.9% of surveyed plans allowed for participant loans. I do include loans in 95% of my plans. We all know someone during COVID who had an unexpected financial hardship. While I am a big fan of maintaining a healthy savings account balance, it is helpful to know that a 401k can be a last resort to keep a personal boat afloat.

The Survey can be one way to see how your 401k plan is doing relative to plans as a whole and in some cases, compared to a specific industry. Benchmarking the plan every three to five years in keeping with Department of Labor guidelines is also essential. Still, the Survey is a good read. As always, I welcome your thoughts!