A Goodbye and a Challenge

I’m sorry to report that this is the final article for 401k Millionaire. Even publications with the best of intentions aren’t always successful enough to continue, but we hope the many stories about creating, managing and funding a great 401k account have helped put you on the path to a safe and secure retirement.

It’s fitting that I write the final piece for 401k Millionaire. Though I didn’t join the Investing Daily team to work on 401k Millionaire, much of my last job was devoted to improving 401k plans, specifically improving them using behavioral science. Behavioral science can be used to leverage how people naturally think and act to help them grow a bigger retirement nest egg. You can read about how you can use these techniques for your own savings in Adopt Best Behavioral Practices in Your 401k Account.

Part of my last job was speaking around the country to audiences of financial advisors and administrators of 401k plans. We’d help them understand how just a handful of changes could radically improve the success of a plan. We defined success not by a plan that would be free from interference by regulators or which cost the company a minimal amount of money – many of those who run 401k plans make these their main goals – but by a plan that served employees best.

You can be a catalyst to improving your company’s 401k plan for not just your own benefit, but also for the benefit of all your coworkers.

This isn’t a pipe dream—I know it happens in real life.

For example, before I gave a talk in Southern California about a year ago I met a woman who served in her company’s human resources department. A year earlier she had found herself on the 401k committee, which apparently came with her job as being a benefits administrator. At that time the 401k plan suffered from many classic problems. The employer didn’t match contributions, and the investment menu had too many choices. Most workers, she said, were overwhelmed by the choices and so defaulted to the “stable value fund,” which meant their savings lost ground to inflation every year.

Less than 40% of workers even participated in the plan, and the average savings rate of those that did was less than 3% of their annual pay. In short, it was a mess.

The problem wasn’t that the employer didn’t care about the workers. It was a family-owned business with a history of treating its employees well, including offering a good medical plan and base pay well above the minimum wage.

The problem, she said, was priorities.  The company’s first priorities were expanding sales, fending off competitors, keeping the trucks running on time, etc.  And the plan was such small potatoes (less than $5 million in retirement assets) that the company that administered the plan didn’t work to improve it. Then again, many plan administrators, I found, don’t know how to improve a plan.

Many are simply focused on the “three F’s.” Those are the funds in the plan, the fees and the “fiduciary” – or who takes responsibility for the plan.

By the time we met, this HR staffer had convinced her boss that the 401K plan could be so much more, and that is was failing to provide for the needs of employees when they retired. Her boss, the HR director, convinced the company president, and together they shopped for and found a financial advisor that could overhaul the plan.

The workers in the plan had jumped to more than 80% when it implemented “automatic enrollment,” which means employees are automatically put in the plan, but have the simple choice to opt out, if they wish. The average savings rate had doubled.

Many other positive changes had been made, and when I met her she was searching for ways to further improve the plan. I was teaching lessons from the book “Save More Tomorrow: Practical Behavioral Finance Solutions to Improve 401(k) Plans,” (By Shlomo Benartzi, with Roger Lewin. Available on Amazon for $38.39 new or less than $5 a copy used.) It’s filled with powerful ways to improve retirement savings.

She’s since left that firm and is working to improve the 401k plan at her new employer. We had a chance to swap emails recently, and I asked her what advice she’d give to others who want to start a 401k revolution, or at least an evolution, at their own workplace. “Create a vision,” she said. “Help people imagine the tremendous impact a great 401k plan can have on your workers and their families.”

So let me sign off with this challenge: With what you know about 401k plans, consider working to  improve your company’s plan for the benefit of others. Create a culture of 401k Millionaires.