Revamped 401(k) Helps Employees Get on Track

Employees are often struck with inertia when it comes to their 401(k) plans.

Some employees neglect to increase their savings rate over the years, while others may not pay attention to their portfolios’ asset allocations. Lincoln Trust Co. found that one-fourth of its own plan participants had either no equities or 100% equities in his/her allocation. In addition, 30% of participants were contributing less than 5% and the average 401(k) balance was $77,000 with an average age of 46.  

To combat these problems, Lincoln recently rolled out a revamped 401(k) plan for its employees. The firm’s plan places participants in one of five diversified, risk-based asset-allocation models based on their age/risk profile, and includes a brokerage window option. It also starts employee contributions at 5%, with an annual 1% increase to 10%.  

Creating the five allocation models allowed Lincoln to reduce volatility through exposure to alternative asset classes, Tom Gonnella, executive vice president at Lincoln, told PLANADVISER. “They are not product/fund family specific, meaning we can choose the best investments from the various fund families,” Gonnella said, “and the models allow more flexibility to be tactical as market conditions change.” 

The plan strives to keep fees low—the average weighted expense for the models is 20 to 30 basis points. “We put our money where our mouth is on this issue,” Gonnella said. “This plan gives participants a greater chance for retirement success and is consistent with the philosophy of Lincoln Trust and its business practices.”  

Providers can make fundamental changes that are not “earth-shattering,” Gonnella noted, but can still make a meaningful difference.  

Lincoln’s platform is structured to allow the substitution of any adviser, so those who are interested can create their own models for their clients using Lincoln’s open-architecture platform, Gonnella said. For now, Lincoln is implementing its new 401(k) to its employees but is looking into offering it to Lincoln clients as well.  

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