Russell Report Suggests Income Replacement New Goal of 401(k) Plans

September 18, 2007 ( - Income replacement has usurped wealth management as the most important objective of defined contribution plans and employers are taking note, a research report by Russell Investment Group argues.

Russell argues that the burden on the defined contribution fiduciary might have seemed less onerous than that of the defined benefit fiduciary, but that misconception is going away with a new generation of 401(k) plans.

Fiduciary responsibilities will now include decisions around auto-enrollment, qualified default investment alternatives (QDIAs), brokerage window options and employee education, to name a few, according to a press release.

Among the 15 features of a new generation of 401(k) plans that Russell Retirement Report 2008 suggests are:

  • Individual 401(k) account reporting should be tied to retirement income levels instead of net asset value. Russell suggests that progress reports allowing individuals to see the accumulated value of their plans in terms of retirement income would change their attitudes about the plan.
  • Standards of investment efficiency should be raised to the same level that institutional investors demand for corporate defined benefit plans.
  • Pre-mixed asset-allocated funds should replace asset class funds as the new investment foundation. This means that default options should not be one-size-fits-all. Rather, they should take into account the different risk appetites of participants.

“Before our eyes, and at a quite remarkable pace, a new breed of 401(k) plans is being designed, built, tested and launched,” said Bob Collie, director of investment strategy at Russell and author of the Russell Retirement Report 2008, in the press release. “What’s happening is really a redefinition of every aspect of how a 401(k) plan ought to be run, and it all flows from an acknowledgement that these now have to work as retirement provision vehicles and not just savings plans.”

The Russell Retirement Report 2008 can be downloaded .