401(k)s Have Made Significant Progress in Improving Participant Outcomes

In honor of National Employee Benefits Day, Jason Grantz, with Unified Trust, discusses the progress made in the 401(k) industry and the future focus.

“National Employee Benefits Day is intended to bring awareness to and celebrate people who work on employee benefit plans, whether plan sponsors or service providers,” says Jason Grantz, director of Institutional Retirement Consulting at Unified Trust in Lexington, Kentucky, a firm that supplies corporate trustee services with the goal of improving results for participants. “It’s an important industry, and the work done should be appreciated.”

And, the work done has moved 401(k) plan designs a long way. “What we’re seeing is a real shift, compared to a trickle about a decade ago, in defining the purpose of retirement plans,” he says. “Previously, the 401(k) may not have had a defined purpose; employers offered them to be competitive or for tax benefits. But now we are seeing a shift to viewing it as a true income replacement vehicle, designed to be one of the primary sources of income for participants.”

According to Grantz, having that purpose and goal will shift how plan sponsors approach plan design and what service providers will be able to offer.

For example, he says, there are greater numbers of plans today offering automatic plan design features, or utilizing a stretch match, compared to 10 years ago. “Plan sponsors are doing what they can to encourage savings and participation—the two most important factors when it comes to retirement outcomes,” he says.

With the new defined purpose of 401(k) plans, Grantz says plan sponsors are looking for provider programs that offer a “today and tomorrow” experience. They want providers to answer how much income participants will be able to replace in retirement and the probability of participants reaching retirement goals. They are looking for providers to offer calculators, or in some cases more paternalistic solutions such as managed accounts, with which participant investments are designed around their goals and the age they want to retire, and course corrections can be made.

He says there’s an appetite for strategies to help participants draw down assets in retirement, but the market is still relatively immature, and plan sponsors still have some issues with annuities.

“The problem of creating a good solution for draw down will be better served when the industry solves the problem of having enough income replacement in retirement,” Grantz says. “As for the actual vehicle for spreading that out, the market is very good at providing for needs; there are not enough people with the need yet.”