Employers who sponsor 401 plans have long encouraged workers to take their money out of those plans when they retire or leave a company.
Nearly six in 10 of plan sponsors now actively seek or prefer to retain participant assets postretirement, according to a survey of retirement plan consultants by Cerulli Associates.What’s more, managed payout funds—multi-asset-class investments that aim to produce regular, and predictable, income for investors— have received “scant attention” in the “gnarly world of retirement income.
This potential reduction in fees can be attributed to the fact that the fees charged for 401 plans are typically based on the size of the employer’s 401 plan and the number of participants. In the past, plan sponsors didn’t necessarily want the trouble of keeping their former employer’s nest egg in the plan.
Now the fees charged by a 401 provider — administrative, plan consulting and investment — can vary depending on the size of the employer’s plan, the number of participants, and the plan provider. According to the Labor Department, here is a range of fees based on the number of plan participants:· For medium plans , the total annual cost can range from 1.0% to 2.0% of assets.Investment fees, meanwhile, can range from 0.
“They have some participants who’ve actually saved enough, but they don’t realize they’ve saved enough so they’re not retiring,” she said. “It’s like helping people know, it’s actually OK to retire.” To make matters even worse, the Labor Department has a program on missing participants that provides guidance to plan administrators on how to locate and contact missing participants in their retirement plans. But the guidance is not entirely clear on how to implement it, according to Treichel.
Others agree that plan sponsors, plan participants and plan providers, policy wonks and the list goes on are all laser-focused on trying to help workers figure out how to generate income in retirement. Such funds are also a good alternative for those who think using the 4% rule to withdraw money from a retirement account is too risky and that using annuities to generate income in retirement is too restrictive. Plus, it’s an easy sell to get someone who’s been accumulating assets for retirement using a target-date fund to switch into a managed payout fund to distribute those assets.
Behavioral nudges: Implementing effective nudges to encourage participants to select income solutions within the plan remains a continuing challenge.
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