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Quick 401k thoughts on a Friday night

Quick 401k thoughts on a Friday night

| May 10, 2024

I was perusing the Plan Sponsor Council of America's 66th Annual Survey. The survey reflects Plan Sponsor views in 2022. Here are some quick thoughts late in the evening.

Roth contributions: The percent of retirement plans offering the Roth after-tax contribution option stands at 89.1% in 2022. This is quite a jump from the 58.2% in 2013. At Green Retirement, we advise over 100 retirement plans across the US. The Roth option is in all of our plans. For us, it is about letting participants (and their tax advisors) use the tax code to its fullest.

Auto-enrollment: 63.9% of plans offer auto-enrollment in 2022. It is still more prevalent in larger plans (71.8%) versus small companies (28.9%). It makes sense in larger plans given the sheer number of employees being hired/ the massive amounts of other HR-related tasks associated with hiring. And yet, it can be beneficial to small companies particularly if there are large numbers of highly compensated employees and owners. Make sure that auto-enrollment does not sandbag employees who might otherwise contribute higher amounts (ask me about the Microsoft plan sponsor!).

Investment advisor: 82.7% of surveyed plans use an investment advisor. This has steadily increased over time and reflects the value an advisor can bring to the plan. There was a shift in 2022 towards a 3(38) advisor and a drop in the use of 3(21) advisors. This could reflect a sentiment I heard from a Boston-based non-profit client. Said the Executive Director there, "Timothy, my focus needs to be on fundraising. I do not have the time to learn the world of investing. This is your world".

Socially responsible investing: The 2022 survey showed a bump up in plans offering a socially responsible investment option but it is still low (6.4%) but up from 2021 (4.2%). I am heartened by this but there is a long way to go.

Financial literacy: In 2022, 83.1% of employers reported their top educational goal is financial literacy. This is a jump from the 77.4% in 2021. The question I ponder is what is the best way to deliver education. It is not one size fits all.

Just some quick thoughts based on the survey and 34 years in the industry. More in my next article. Your comments are always welcome.