In its recent report, “401(k)s: The Launch of Version 2.0,’ Russell says that as the industry turns its attention to the shortcomings of 401(k) plans, specific areas are receiving significant attention. These areas include: participation rates, contribution levels, investment decisions, fees, and early withdrawals.
Further, as the defined contribution plan has slowly taken on characteristics of the defined benefit plan, income replacement has usurped wealth management as the most important objective of defined contribution plans.
The next generation retirement plan is not a savings plan, but instead aims to be a pension plan, Russell says. The Russell Retirement Report 2008 discusses 15 of the most important differences, which are:
- Default funds
- Brokerage window
- Pre-mixed funds
- Asset class funds
- Education and advice
- Asset allocation in the hands of experts
- Increased focus on the fiduciary
- On-track reporting
- Funding partnership
- Implementation efficiency
- Early distributions and borrowing
- Company stock
Russell argues that the burden on the defined contribution fiduciary might have seemed less onerous than that of the defined benefit fiduciary, but that misconception is going away with a new generation of 401(k) plans. Fiduciary responsibilities will now include decisions around auto-enrollment, qualified default investment alternatives (QDIAs), brokerage window options, and employee education, to name a few, according to a press release.
“Before our eyes, and at a quite remarkable pace, a new breed of 401(k) plans is being designed, built, tested and launched,” said Bob Collie, director of investment strategy at Russell and author of the Russell Retirement Report 2008, in the press release. “What’s happening is really a redefinition of every aspect of how a 401(k) plan ought to be run, and it all flows from an acknowledgement that these now have to work as retirement provision vehicles and not just savings plans.”
The Russell Retirement Report 2008 can be downloaded at www.russell.com/RetirementReport2008.