401(k) changes give savers a brighter future

BOSTON — If you're one of the 72 million workers with a 401(k), you should consider 2010 a very good year. And 2011 might even be better, according to experts who track what some consider the retirement plan of record for many Americans.

So, what were some of the best (and worst) changes that were made to 401(k) plans in 2010 for the benefit of workers and what sort of changes should be made in 2011? Here's what experts had to say.

NEW 401(K) FEE DISCLOSURE RULES: In October, the Labor Department's Employee Benefits Security Administration issued a new rule (effective Dec. 20) that requires plan fiduciaries to disclose more information about 401(k) fees and expenses — including quarterly statements of plan fees and expenses and information about the cost of their investments — to participants.

According to Greg Burrows, the senior vice president of retirement and investor services at Principal Financial Group, the new rule is good for both employers and participants.

"The new rule levels the playing field and makes it easier for employers to compare fees and services," he said.

"For participants, we like the Labor Department's model format that can be used to disclose the additional required information."

"It includes a chart that allows participants to compare investment option information. We believe this chart is a welcome addition to existing fee and investment communication." Others, however, see the fee disclosure rule as good for plan sponsors but not so much for participants.

"The fee transparency regulation at the plan sponsor level was a good thing, helping plan sponsors obtain better fee data from providers," said Lori Lucas, a chartered financial analyst and executive vice president at Callan Associates.

"Fee transparency at the participant level could create some significant headaches for plan sponsors, and may go ignored by participants. I don't know if it's on the worst list, but definitely on the potentially problematic list."

And still others view the fee-disclosure rule problematic for plan sponsors.

Bill McClain, a principal with Mercer's retirement, risk and finance business, said in the year ahead employers should start talking about the fee disclosure with participants sooner rather than later. "Careful preparation can help participants understand and make appropriate use of the new information," he said.

ROTH IN-PLAN CONVERSION OPTION: The Small Business Jobs and Credit Act, which was signed into law on Sept. 27, has a number of provisions that affect those saving for retirement, including one that allows participants in 401(k), 403(b) and governmental 457 plans — beginning Jan. 1, 2011 — to roll over pretax account balances into a Roth account instead of having to roll those assets into an outside Roth IRA. And that in effect helps those saving for retirement save more money on an after-tax basis.

"Every organization is made up of a diverse group of people, each with their own individual needs when it comes to saving for retirement," said Anne Arvia, Nationwide's senior vice president of retirement plans. "This legislation provides workers with an additional resource when planning for retirement."

Mercer's McClain, however, expressed disappointment with the IRS for opening the door to do in-plan Roth conversion so late in the year and with so many unanswered questions around how to implement the feature.

"Guidance was provided at the end of November, but that left insufficient time for plan sponsors to take action in 2010 to take advantage of one-time tax opportunities," he said.

EMPLOYERS REINSTATE MATCHES: In 2009, many employers stopped matching their worker's contributions. In 2010, however, some employers reinstated their matching programs. "Widespread reinstatement of matching contributions was probably the best initiative in 2010 by plan sponsors," said Lucas.

But even though many firms reinstated the match, it wasn't widespread enough, according to David Wray, the president of the Profit Sharing/401k Council of America. According to Wray, 60 percent of the 15 percent of companies that suspended their matches have yet to restore them. "This has resulted in gradually declining participation and deferral rates at these companies," said Wray.

As for 2011, many experts want to see changes to the match formula. "I would also like to see plans change the matching formula so that participants need to increase their contributions to maximize the match," said Patricia Advaney, a senior vice president with Diversified Investment Advisors.

For instance, plans should move from 50 percent on 5 percent employee contribution to 25 percent on 10 percent employee contribution. That's the same maximum contribution per participant, but it encourages higher savings.

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