Proactively Forecasting and Addressing Client Needs

Proactively Forecasting and Addressing Client Needs

Financial advisors who counsel companies on the operation and health of their 401(k) plans have likely been asked of their clients to discuss how the plan operated in 2018 and any changes the company might consider in 2019. These changes are designed to ensure the company’s plan continues to meet the critical need for employees to have a 401(k) that enables them to save for a safe and secure retirement.

A 2018 OneAmerica survey of more than 1,000 plan sponsors revealed the top three priorities of plan sponsors are: providing participant education (69%), improving plan participation (67%) and fiduciary responsibilities (57%). These were followed closely by administrative tasks (45%).1 Advisors should discuss all of these issues with their clients to determine any related concerns they might have for their plan.

Setting the agenda

When creating an agenda to address a client’s 401(k) plan, what issues should financial advisors include? While each client might have a different shortlist, advisors would fare well by proactively raising issues that might not be a problem yet, but that could become an issue in the future. Advising clients on 401(k) operations is about forecasting and addressing client needs before they become concerns.

Below is a list of 5 concerns that companies may have related to their 401(k) plans and areas that financial advisors should consider proactively broaching with clients:

  1. Hardship withdrawals. These allow employees to withdraw money from their 401(k) in case of extreme financial hardship for things like medical expenses, disaster relief (damaged home or property) or a similar calamity. While the money belongs to the employee and it is his or her decision on how to use it, too many withdrawals can affect a plan’s health. Advisors should make sure that plans offer sufficient financial education so that employees understand the impact of making withdrawals on their retirement goals. This might encourage them to repay the withdrawal after they receive an insurance settlement or consider a loan with a stated repayment schedule instead of a hardship distribution.
  2. Low participation rates. This problem still plagues some plans. While automatic enrollment is one solution, it isn’t the only one. Advisors should help their clients brainstorm some of the other options, including simplifying the sign-up procedure to become a plan member, making sure the plan offers enough financial education so that participants know what investment options to choose and ensuring the employer match is high enough to be an incentive for employees to join. Then publicize that match so employees understand a key benefit of participating in the plan.
  3. Recruit and Retain. Business owners are focused on keeping their company profitable. Part of this involves being able to retain key employees in a tight labor market. A sound 401(k) plan with a competitive matching contribution, solid investment choices and comprehensive employee education is a key part of this. Advisors should make certain their clients are working with recordkeepers that offer the best possible 401(k) alternatives so that clients can concentrate on making business decisions and not have to worry that their benefit offerings are competitive.
  4. Plan operating costs. Operating costs are always an issue that financial advisors should review regularly to make sure that recordkeepers are providing each plan with the best deal possible for the company and its employees. This includes investment and recordkeeping costs as well as third-party administration costs. It’s a good idea for advisors to periodically ask recordkeepers if they can suggest plan changes that will reduce costs or ask other recordkeepers to bid on the plan to see if they can provide the same level of service at a lower cost.
  5. Fiduciary liability. This covers everything from the forms the plan files with the IRS and the Department of Labor to making sure an employee doesn’t sue the plan. One easy solution is to find a recordkeeper that can also provide access to fiduciary assistance through a third party. This will allow for seamless sharing of information so that government filings are accurate and complete. This also involves being transparent with employees about the obligations of the plan and an employee’s own responsibility to save for retirement, as well as educating employees about investment options, the risks they present and how much they should save to provide the income they will need at retirement.

Collaborate with a team

The best way to provide 401(k) clients with the services they need is to work with a recordkeeper that has a team that can provide basic services, design an easy-to-use website, provide access to participant education and top investment options, and make fiduciary services available. Together, these activities will ensure the client has the best possible 401(k) plan in 2019 and beyond.

 

1. https://www.oneamerica.com/newsroom/news-releases/Survey-Retirement-Plan-Sponsors-Challenge

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