Since the institution of 401(k) plans more than 30 years ago, 401(k) providers have escalated the number of plan features to stay competitive within the marketplace. We've seen the proliferation of such features as:

  • Daily valuation
  • Loans
  • Self-directed brokerage
  • Web access
  • Investment education tools
  • Multi-share classes
  • Co-fiduciary responsibility
  • Advice tools
  • Lifetime income options

But, in order to be successful today in the financial service industry — and avoid commoditization — we can’t sell features. We have to assist clients in achieving positive outcomes.
For those of us in the retirement plan business, it is, simply stated, helping employees meet the retirement income challenge.

Recent research is showing that the relative importance of retirement plan success factors may not be what you think. A 2011 study by Unified Trust Company, Retirement Success: A Surprising Look Into the Factors the Drive Positive Outcomes¸ indicates that the saving rate is the most important:

  • 5 times more important than asset allocation
  • 30 times more important than an annual assessment
  • 45 times more important than fund selection

Putnam in its 2012 study, Defined Contribution Plan: Missing the forest for the trees?, quantified the practical impact of specific tactics used by plan sponsors on retirement outcomes. Putnam reached a similar conclusion that higher deferral rates were the key:

“Our analysis suggests that putting fund performance front and center in terms of the plan sponsor’s priorities is an error with far-reaching implications. That is not to say that fund performance does not matter, but our analysis suggests it is a much less powerful variable compared with asset allocation and, most of all, higher deferral rates.”

For us non-investment experts, maybe we should reprise the old “cost of waiting” example for plan sponsors and 401(k) participants. The one found in an old 401(k) enrollment book that goes something like this:

If you wait for 10 years and contribute for 20 years, you’ll have $90,688. But if you start now and contribute for 30 years, you’ll have $194,903. (This assumes a $200 a month contribution made at the end of the month and earns interest at 6%, etc.).

Getting employees to act, however, is the challenge.  We need to, first, educate plan sponsors on the new definition of arriving at positive participant outcomes.   

Kalish is an EBA Advisory Board member and president of National Benefit Services, Inc., a Chicago-based third party administrator. He is a guest lecturer at John Marshall School of Law LLM Program in Employee Benefits and serves on the Great Lakes IRS Advisory Council for Tax Exempt and Government Entity Plans. He can be reached at

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