The battle to cure 401(k) participant apathy

Nice pieve that expresses the difficulty and frustration many of us feel when it comes to your employees apathy about their retirement plan.

May 8, 2012 by The Rosenbaum Law Firm Blog

The old joke is that they once found a cure for apathy, except no one has shown the slightest interest in it.

When it comes to the retirement plan industry, apathy comes on many different levels: the plan sponsor level and plan participant level. The plan sponsor apathy in maintaining their retirement plans has been curtailed slightly because of the rises cases of litigation brought against plan sponsors and the move to fee disclosure in 2012.

Participant apathy is a much tougher nut to crack. Thanks to a lost decade of investing, a hurting economy, and a poor way of providing assistance to plan participants, there has been a lack of interest in plan participants in utilizing their 401(k) plan.

CFO Research Services, on behalf of Schwab, surveyed more than 200 senior finance and human resources executives about their perceptions of 401(k) plans in the workplace. Key findings show more than half (54%) of employers report that employees participating in plans are not taking full advantage of the investment options, features and services offered in connection with their 401(k) plan. In order to better engage employees, the majority of employers plan to make as much or more extensive use of traditional outreach methods, including interactive planning tools (93%), printed educational materials (93%), and in-person workshops (81%). Only 16 percent of employers plan provide investment advice through a third-party adviser, despite evidence that it does increase a participant’s rate of return. To my surprise, automatic enrollment is growing at a strong clip. The survey showed that growing number of employers are using or considering the use of automatic solutions. In total, 45 percent are currently auto-enrolling employees and another 25 percent are very or somewhat likely to do so.

A separate survey of 401(k) participants clearly shows the participant apathy. Koski Research, on behalf of Schwab, surveyed more than 1,000 workers enrolled in 401(k) plans across the country and found that: more than half (52%) say they don’t have the time, interest or knowledge to properly manage their 401(k) portfolio and a majority of plan participants (56%) do not review plan-related education materials they receive.

Let’s face facts, participant apathy is a fact of life and plan sponsors should do what they can to decrease it. While plan sponsors should focus on handling their fiduciary role and mitigate their liability risk through good practices, plan sponsors should do their best to decrease apathy. The cure? Your guess is as good as mine, but whatever the size, participant apathy will always exist. So while it will always be there, there is no reason a plan sponsor should raise their hand sup and do nothing.

I think plan sponsors and their advisers should think outside the box and consider ideas that could help spur participant interest in deferring under the 401(k) plan. Is it offering advice through a third party like rj20 or Smart 401(k)? Is it offering a $20 gift card raffle at a plan participant education meeting? I don’t know, but I always feel like plan sponsors and their providers could make an enrollment/education meeting more interesting and less frightening than a dental exam.

Why should plan sponsors spur participant interest even if they are managing the fiduciary process well? Increased participation equals more interest which increases assets which decreases plan administration expenses as a percentage of fees. In addition, a 401(k) plan is an employee benefit that is supposed to be a reward for employees and a recruitment tool for potential employees.

Like Gary Hart said in his 1984 presidential campaign, we need new ideas. So I am always interested in new ideas in decreasing participant apathy. If you got an idea, I am interested in hearing about it