Reish: K Plans Can be Better if Sponsors Demand Excellence

June 28, 2006 ( - CHICAGO - At least one retirement services expert who considers the widespread prediction that 401(k) plans will become the nation's primary retirement savings vehicle is not depressed at all by the thought.

Fred Reish, managing director of the Los Angeles law firm Reish Luftman Reicher & Cohen and an Employee Retirement Income Security Act (ERISA) expert, told a dinner audience Wednesday 401(k) plans can become a significantly more effective vehicle if plan sponsors take more responsibility to demand a higher level of service from plan advisors and providers. Reish spoke during the opening day of PLANSPONSOR’s Plan Designs 2006 conference at a Chicago hotel.

“Employers have to demand results from their advisors and providers,” Reish declared. “Set a goal and then go to your advisors and providers and say ‘Show me how to get there.'”

That plan goal setting should center around three areas:

  • Getting employees to invest well,
  • Increasing plan participation, and
  • Increasing deferral rates.

“You do really well on those three and you are providing significant benefits,” Reish claimed.

A start would be for plan sponsors to focus on results and not on the number of features the plan offers, he said

As they go about urging their advisors and providers onto greater heights of effective plan service, Reish urged his audience to make maximum use of two plan features rapidly growing in popularity in recent months: lifestyle or lifecycle funds and auto enrollment.

Reish noted that the US Department of Labor (DoL) is expected to release in the next several weeks a rule setting out a safe harbor for auto enrollment default fund selection that he said focuses on multi-asset class vehicles that are likely to include lifecycle/lifestyle funds, managed accounts, and balanced funds.

As have other Washington observers, Reish confidently predicted that auto enrollment will be a notable part of the sweeping pension reform bill currently being worked on by a Congressional conference committee and that the legislation will also preempt any state law to the contrary.

“The more paternalistic employers want to have auto enrollment because they want their employees to have a comfortable retirement, ” Reish asserted.

Finally, Reish contended, plan sponsors will have to more closely monitor potential conflicts of interest among those working on their plan as well as the fees their plan pays.