Five ways advisors can boost clients’ 401(k) savings

Sept. 10 marks the 30th anniversary of 401(k) Day, a campaign by the Plan Sponsor Council of America to encourage workers to save through employer plans and increase contributions where possible. The organization moved the observance to Sept. 10 to avoid coinciding with Sept. 11 and said rising living costs, longer life expectancy and economic uncertainty make steady saving more important.

Data from Fidelity show differences in savings rates across generations: baby boomers contribute about 12.20% of pay on average, Generation X about 10.50%, millennials 9% and Generation Z 7.50%. Those gaps have prompted advisors to focus on workplace plans as a savings vehicle throughout clients’ careers.

Research from Morningstar finds managed accounts offered inside defined contribution plans are associated with higher employee participation and larger contribution rates. Managed accounts provide a personalized investment strategy within a plan, similar to automated advisers. Daniele Griffith, director of tax operations at April Tax Solutions, noted that employees are often more willing to ask questions when an advisor is available through their employer plan than to seek an outside planner.

When workers leave an employer, advisors often weigh whether to roll over a 401(k) into an individual retirement account. Rollovers move pretax assets to a traditional IRA and after-tax assets to a Roth IRA, and they generally expand the range of investment choices. Trade-offs include the loss of plan loan options in IRAs and the fact that IRA fees are not always lower than plan fees. Advisors can compare available investments and administrative costs to help clients decide.

The Certified Financial Planner Board issued guidance urging advisers to distinguish general education from specific recommendations when discussing rollovers. The board also said advisers must disclose if there is information indicating a rollover would not be in a client’s best interest and should note material factors even when a client directs a rollover.

The Department of Labor proposed a rule to provide a safe harbor for plan fiduciaries to select certain investments, including alternative investments, for participant-directed plans. The public comment period for that proposal closed on June 1. If the rule is finalized, alternative investments could become more common in 401(k) lineups, and advisers will need to assess whether such options fit a client’s risk tolerance, time horizon and diversification needs.

Advisers can also engage clients’ adult children to encourage early enrollment and capture employer matching contributions. Mitchell Kraus, co-founder of Capital Intelligence Associates, advises telling young workers that the employer match is effectively free money and often leaves savers better off even if the chosen investment underperforms.

Automatic enrollment and automatic escalation features can raise participation and savings over time. Advisers monitor plan fees, review investment lineups, guide rollover decisions, evaluate new investment choices and encourage early participation by younger workers as part of working with clients on employer-sponsored retirement accounts.