It happens often in sports. After a particularly brutal game, the fantasy league hero, a member of the losing team, cites his just-garnered outlandish statistics and brags to a player from the winning team. And that member of the winning team shoots an impertinent glare and curtly replies, “Scoreboard.”

Sadly, such statistical aficionados inundate the 401(k) industry. From regulators to service providers to naïve plan sponsors to the mass media itself, there's an overemphasis on those infamous metrics of fees and investment performance. Easily measured isn't the same thing as meaningful. At the end of their careers, employees don't care about fees of other metrics, they only care about one thing: “scoreboard” or, in this case, their own personal retirement readiness.

This doesn't absolve the 401(k) plan sponsor from ensuring the plan gets appropriate value for the fees paid or that the investment selections have been made with sufficient due diligence. Those are still critical items within the realm of their fiduciary duty.

At the same time, if a plan sponsor focuses only on fees and investments and leaves a plan that fails to incorporate the more generally accepted recommendations from the field of behavioral finance, is that really in the best interests of the employees? If the plan has low fees and great investments, yet doesn't do enough to encourage savings, does it still count as a benefit to an employee who doesn't participate?

The letter of ERISA law doesn't require a plan sponsor to include auto-enrollment or auto-escalation in the plan design. Neither does it require the plan's investment policy statement limit the number of investment options to, say, six (a number one research study said represents the best number for “choice”). If anything, plans that include some of these features can be penalized if they're not careful.

What does this have to do with retirement readiness and why should this scare plan sponsors?

Think about it. In an overly litigious society where personal responsibility is not demanded, how hard is it to imagine a future class-action against a plan sponsor that didn't use auto-enrollment/escalation or, didn't periodically monitor their plan employees' retirement readiness—if only as a service benefit to their employees. You don't have to be sold on the paternalism implicit in “auto”-everything. You have to just want to do the right thing.

The technology exists today to do this, but it comes at a cost. Ironically, the undue stress on fees may be making 401(k) plan sponsors reluctant to engage service providers capable of measuring retirement readiness.

And this should scare the bejabbers out of plan participants. If not now, then when they retire and are finally ready to understand the significance of “Scoreboard.”

Instant Insights /

What (should) really scare plan sponsors

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