Regulations and Costs Shaping Future of 401k Plans According to FRC Study

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The defined contribution plan, which includes 401(k)s, were first introduced as a supplement to the pension plan or defined benefit plan. They have now become the primary vehicle for employees retirement. We must transition these plans to work more like the pension plan.

Government regulations have had a profound and varied affect on DC plans and administrators,” commented Prescott. “For example, the Revenue Act of 1978 essentially launched the industry, and the Pension Protection act fueled the incredible growth in target date funds. Currently, as a result of impending feedisclosure requirements, as well as high-profile press coverage and evolving economics, plan sponsors are focusing on total plan costs and how they can be reduced. Enhanced fee information is becoming available to plan participants and there is heightening competition among recordkeepers of all types and sizes.”As part of the report, FRC’s analyzed information from BrightScope’s retirement plan database. This analysis revealed that total plan participant costs as a percentage of assets vary significantly with plan size, and the average participant-paid costs as a percentage of assets for the smallest plan groups was more than three times those of the very largest plans. “This shows the impact of scale on the business,” said Prescott. “In our analysis we also saw cost disparities where comparably-sized plans within an industry often had substantial differences in the actual dollar amount of annual fees that a participant would pay, amounting to hundreds and even thousands of dollars a year. The spotlight on plan costs is causing plan sponsors to seek out and use benchmark data more frequently to uncover opportunities to reduce plan costs, often through plan redesign or change in plan providers.”

The defined contribution plans 401(k) will adjust due to regulatory changes and future changes. There are options for smaller plans under $25 million to lower costs and improve outcomes for plan participants.

Please comment or call to discuss how this will affect you and your organization.

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