In the long march from employer-paid pensions to a 401(k) world, a few holdovers remain.
Older workers still typically subsidize younger workers in paying for plan costs. Participants in workplace plans typically must wait for the end of the trading day to have their investment changes take effect. And they don't have a lot of control over how they receive advice.
A case can certainly be made that these aren't necessarily bad things. A little paternalism can encourage younger workers to save, protect all workers from becoming day traders and give them guidance for long-term returns.
But a la carte menus are becoming increasingly common, so it pays to understand these key changes and voice your opinion on them with your benefits department.
Fees. As workers and companies alike learn more through federally required fee disclosures, they're beginning to ponder different ways of paying the plan-cost freight.
Most employers divvy up the cost of administering their retirement plans and picking the underlying investments among employees according to the size of their accounts. Expenses are assessed as a percentage of assets in the plan, so long-tenured workers with more savings end up paying more for, arguably, the same services younger counterparts receive.
And within workplace plans, because of differences in fees associated with investment options, workers in low-cost funds can end up subsidizing those in pricier ones.
In a survey of retirement plan sponsors by Aon Hewitt, about 75 percent of them said they review fees annually, and half said they are somewhat or very concerned about current 401(k) plan expenses.
About 1 in 5, or 21 percent, have recently changed their fee structure so costs are "assessed in a more equitable manner," the company said in a release.
Trades. After telling a room full of retirement plan representatives at an industry conference recently that the industry is moving toward intraday trading in 401(k) plans through exchange-traded funds, Steve Anderson, executive vice president of Schwab Retirement Plan Services, not surprisingly got at least one note of concern from the audience about distracted workers day-trading their 401(k) accounts during business hours.
He responded that workers already place trades during the day, but because most plans only offer mutual funds in their 401(k) lineup, the trades are posted at the daily closing price. And in companies where plan participants have access to full brokerage windows, he said, there is little evidence of run-amok trading.
"If we don't ask these questions, someone else will," Anderson said, referring to new features such as intraday trading, exchange-traded funds and more personalized advice in plans.
Advice. Anderson also expects the target-date mutual fund world will migrate to more customized advice within plans.
As expense ratios in 401(k) investment offerings continue to decline as more companies migrate to low-cost index funds and ETFs, Anderson said, there's room to offer personalized asset allocation plans, for example.
Schwab, which offers 401(k) services to about 1.3 million workers, this year launched an all-ETF 401(k) platform that is paired with a "managed account" arrangement. Employees in these plans have access to low-cost ETFs, but can also choose to receive one-on-one asset allocation recommendations designed to account for factors such as marital status and assets in other savings accounts.
In contrast and by definition, target-date mutual funds allocate investments only on one data point — a retirement date. Two people with the same projected retirement date may need significantly different levels of investment risk depending on those other factors, Anderson said.
Calling it a "personalized glide path," Anderson said the offering allows for greater customization of portfolios.
Many changes to 401(k) plans in recent years have involved making 401(k) plans more automatic and less dependent on savers to actually do something proactive, but it still pays to stay abreast of trends.
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