Change is Hard: The Reluctance to Evolve Retirement Plans
Change can be hard for several reasons, both psychological and practical. We tend to seek stability, familiarity, and predictability, so when something shifts, it can feel unsettling or even threatening. As humans, we face change in all facets of life. As a leader or decision maker we sometimes avoid making changes because of the fear of backlash or potential negative outcomes. However, the status quo isn’t always the best route.
Plan fiduciaries are responsible for making decisions and changes for their retirement plans. Yes, it requires transparency, diligence, prudence, and a focus on participants’ best interests. Yes, it can also have emotional and psychological impacts. However, there can be implications for not making changes at all. Are you putting yourself at risk by not making a change?
As an investment advisory firm for over twenty years, we have seen the challenges of making change play out all too much. We wanted to share some experiences we have had in the past and why decisions, or lack thereof, could have impacted participants over the long term.
Investment re-enrollment: Re-enrollment can provide many benefits to plan participants. It can promote better investment choices. Re-enrollment gives participants the opportunity to review and update their investment choices, ensuring that they align with their retirement goals and risk tolerance. It can also offer a chance to encourage employees to rebalance their portfolios periodically to maintain an optimal asset allocation. If participants do not select an investment option during the re-enrollment period, those participants are defaulted into a target date fund or investment portfolio that aligns with their age. This offers employees a diversified and well-managed allocation. A change like this impacts all plan employees. Plan sponsors have expressed concerns about moving employees from outdated conservative default options into more aggressive options to higher equity funds.
Automatic features: The retirement plan industry has seen an increase in automatic features including automatic enrollment and automatic escalation. It is widely known that America is facing a significant retirement savings shortfall, with many Americans unprepared for financial security later in life. Studies have shown that these features increase participation rates in retirement plans and increase savings rates across the workforce. In fact, as part of SECURE 2.0, it is now mandatory for new retirement plans to include automatic enrollment.
We continue to see reluctance to make these changes. Cultural resistance, administrative concerns, and fear of employee pushback are the top reasons for avoiding automatic features. We certainly understand; it’s not easy making a change that will impact your employees. However, we should ask ourselves, are we holding them back from a more financially secure retirement?
Your organization’s retirement plan is complex, full of ever-changing details, regulations, and oversight. We have built our reputation on understanding those complexities and helping plan sponsors build strong retirement plans. Have questions about this topic or other retirement plan fiduciary topics? Contact our team!
Sean M. Duffy, QPFC, AIF ®
Investment & Fiduciary Consultant
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