Greetings and welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
The attack on 401k forfeiture accounts is full on with a recent lawsuit filed against Wells Fargo’s $46 bn plan, the 6th largest, while a similar suits against Qualcomm survived the motion to dismiss. Other plans that have been sued include Intuit, Clorox, Honeywell, HP and Mattel.
Though IRS guidelines permit plans to use forfeiture accounts to reduce contributions or plan expense they can also add money to participant accounts. The suit alleges that Wells failed to conduct a reasoned and impartial decision.
As long as there are vesting schedules, there will be forfeiture accounts and it may be the courts, not the IRS or DOL, that decide how and when plans may use them.
A Vanguard study touted the benefits of hybrid TDFs which include annuities as people get closer to retirement alleging that they can deliver higher investment value.
The report cited 3 types of annuities including SPIAs with immediate payouts, DIAs with deferred payouts and QLACs which start later in life. Plan sponsors and participants needs a better understanding of the various annuities while the industry needs to keep things simple to drive demand.
Though Vanguard does not offer hybrid TDFS, which makes the research more credible, they did caution about the high costs of annuities and questioned whether participant engagement is required, something the father of the auto plan, UCLA professor Shlomo Benartzi, has argued for.
Do we have another 401k hater? The WSJ’s recent column “Is Your Company’s 401(k) Match Unfair?” may seem like an attack but it also might be a fair observation.
Based on Vanguard research, the top 20% of earners get 44% of the match which makes sense because they contribute more and max out the match, but the inequities are still troubling and might require plans to consider redesigning the match formula. Because the 401k industry will be judged on results not effort or intent which means that if we if we do not increase coverage and improve outcomes helping the less wealthy and minorities, the government might step in or reduce the tax deferrment.
There were two new recent hires worth noting highlighting convergence and retirement income:
1st, Cetera, one of the largest independent BDs, hired Jerry Patterson, former president of Fidelity’s Life Insurance Company and head of sales at Principal Retirement before that. He will lead Cetera’s retirement, insurance and annuities segment, a new position, as wealth managers and their BDs begin leveraging the convergence of wealth & retirement at the workplace. Jon Anderson, director of retirement plan solutions will report to Patterson.
Meanwhile, Allianz Life hired storied industry veteran Ben Thomason as chief of DC distribution. Thomason had worked at iJoin, Vestwell, Goldman and Fidelity. As momentum heats up for in plan retirement income, Allianz is well poised to take a leadership position especially with Thomason at the helm now.
At the recent RPA Record Keeper Roundtable, the focus was on how to handle the explosion of new 401(k) plans, especially smaller ones, enticing and welcoming wealth managers as well as the cost and opportunities with technology. With fees stable or going down and the cost of technology and labor rising while the demand for service increases, what can providers do to compete and maintain healthy margins?
The current high-touch systems built on antiquated technology and processes will not work with smaller plans and start-ups and may not be viable for larger ones either. As both record keepers and advisors seek additional revenue from participants, the need for data and collaboration increases.
Read my recent WealthManagement.com column about whether the DC industry come together to collaborate leveraging the emerging technology like AI while safely accessing data and enabling people, both internally and externally, incorporating more streamlined processes.
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
- State Street adds lifetime income twist to their TDFs
- Student loan programs taking hold
- Schlichter preps advisors for DOL fiduciary rule
- Cerulli defines the current state of financial wellness programs
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.