A Plan Sponsor’s Fiduciary Calling:
Improving the Retirement Readiness
of Plan Participants
Marcia S. Wagner, Esq.
Sponsored by: Mutual of Omaha
Helping Participants Get
Ready for Retirement

Problem of Saving and Investing Enough
◦ Many younger employees have not started.
◦ Many older workers lack financial security.

Reliance on 401(k) Account for Retirement
◦ Median account balance is merely $22,800.
◦ Median for older workers (age 60 - 64) is $60,600.
2
Retirement Readiness Concerns
for Plan Sponsors
 Aging Workforce Without Financial Security
◦ Can hurt morale.
◦ Can hurt workforce productivity.
◦ Can lead to complaints filed against Plan.

Helping Participants Achieve Retirement
Readiness
◦ Relevant Rules Under ERISA
◦ Best Practices
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Implied Duty to Educate Participants
on Retirement Readiness

Reasons for Plan Sponsor to Help Participants
◦ ERISA imposes basic fiduciary duties.
◦ Participants must receive sufficient investment
information.

404a-5 Regulations
◦ Annual disclosures for Plan’s investment options.
◦ Quarterly disclosures for Plan’s fees and expenses.
4
Implied Duty to Educate Participants
on Retirement Readiness (cont’d)

404a-5 Regulations
◦ No direct requirement to educate participants.
◦ But disclosures must be written so “average”
participant can understand.
◦ Implied duty to help participants understand
404a-5 disclosures and how to save and invest.
5
Safe Harbor for Participant Guidance

Protection Under DOL’s Safe Harbor
◦ Protects plan sponsors when offering participant
investment education.
◦ Potential liability for fiduciary investment advice.
◦ DOL Interpretive Bulletin 96-1 provides guidance on
how to provide non-fiduciary investment education.
6
Safe Harbor Categories of
Non-Fiduciary Education

4 Categories Under Interpretive Bulletin 96-1
◦
◦
◦
◦

Plan Information
General Financial and Investment Information
Asset Allocation Models
Interactive Investment Materials
Wide Range of Safe Harbor Categories
◦ Should enable Plan Sponsor to provide non-fiduciary
education to participants.
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Avoiding Unnecessary Fiduciary Risk

Improving Retirement Readiness
◦ Plan sponsors can avoid unnecessary risk and
potential liability.
◦ Economic benefits from enhanced productivity.
◦ Satisfied employees have less motivation to file legal
claims.
◦ Potential liability limited to size of participant’s loss.
◦ Educated participants typically less concerned by
short-term volatility.
8
Participant Education Focused
on Retirement Readiness

Benefits of Participant Education
◦ Serves as risk mitigation tool.
◦ Fosters good will.

Issues Arising from Lack of Retirement
Readiness
◦ Feeling that employer has failed employees.
◦ Drag on workplace productivity.
9
Best Practices for Plan Sponsors

Making a Difference
◦ Ability to help improve retirement readiness of
participants.
◦ Plan sponsors should utilize “best practices.”
10
Best Practice #1

Evaluate Retirement Readiness at Plan-Level
◦ Evaluate retirement readiness by evaluating Plan data.
(1) Overall rate of participation in Plan.
(2) Median contribution rate for participants.
(3) Size of median account balance.
(4) Identify popular investment alternatives.
◦ Consider consulting qualified advisor.
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Best Practice #2

Implement “Retirement Readiness” Programs
◦ Communication Program
(1) Address behavioral inertia of participants.
(2) Big advantage for participants who start early.
(3) Make case to take action immediately.
◦ Education Program
(1) Engage participant education provider.
(2) Reinforce importance of staying on track.
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Best Practice #3

Integrate Assessment into Education Program
◦ Provide “readiness” assessment for each participant.
◦ Many advisors and administrative providers offer
tools to help participants.
(1) Calculate retirement needs and required savings.
(2) Gap analysis can provide effective “call to action”
for participants.
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Best Practice #3 (cont’d)

Integrate Assessment into Education Program
◦ Providers can also provide one-on-one counseling.
◦ Guidance should qualify as non-fiduciary education
under DOL’s safe harbor.
◦ Safe harbor liability protection for plan sponsor.
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Best Practice #4

Adopt Plan Design Changes
◦ Plan design can influence participation, contribution
and investment behavior.
◦ Use plan design to promote retirement readiness.
◦ Automatic Enrollment and Automatic Escalation
(1) Automatically enroll new employees or
re-enroll existing employees.
(2) Importance of default contribution rate.
(3) Use auto-escalation to achieve meaningful
contribution rate.
(4) Participants can always opt out.
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Best Practice #4 (cont’d)

Adopt Plan Design Changes
◦ Default Investment Alternative
(1) Consider Plan’s balanced or target-date option.
(2) Default can be used for auto-enrollment or
simple enrollment.
◦ Lower Percentage Match
(1) Lower percentage match while keeping same
maximum match amount.
EXAMPLE: Max of 50% match on 6% of pay
becomes 33.3% match on 9% of pay.
(2) Consult counsel before making changes.
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Conclusions

Important Considerations
◦ Plans may harbor unnecessary liability risk.
◦ Concerns arise when participants lack understanding
of Plan, and retirement savings are inadequate.
◦ Consider using best practices to help participants.
◦ Consider engaging advisor or education provider.
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Summary of Best Practices

Evaluate Retirement Readiness at Plan-Level

Implement “Retirement Readiness” Programs

Integrate Assessment into Education Program

Adopt Plan Design Changes
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Important Information
This presentation is intended for sponsors of 401(k) plans
and other types of defined contribution retirement plans
with participant-directed investments that are subject to the
Employee Retirement Income Security Act of 1974, as
amended (ERISA).
This information is intended for general informational
purposes only, and it does not constitute legal, tax or
investment advice on the part of The Wagner Law Group,
Chepenik Financial or their respective affiliates.
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A Plan Sponsor’s Fiduciary Calling:
Improving the Retirement Readiness
of Plan Participants
Marcia S. Wagner, Esq.
q.
99 Summer Street, 13th Floor
Boston, MA 02110
Tel: (617) 357-5200 Fax: (617) 357-5250
Website: www.wagnerlawgroup.com
marcia@wagnerlawgroup.com
A0097067