The 401(k) Sky is Falling!
Look left – lawsuits. Look right – regulations. Look straight – tax reform. It seems that everywhere you look the retirement plan industry is in trouble. But is it really? Yes it is. Seriously. We should all stop right now, pack up our bags and join the gig-economy.
No, no, no, we’ve seen this all before. Remember the Pension Protection Act of 2006, Tussey v. ABB? The financial crisis? Fee disclosure? And – as of late, the Conflict of Interest rule? Life is always changing, otherwise Congress wouldn’t get re-elected and lawyers would starve. This is just the latest avalanche of focus. Now here’s the question – do you run for cover or double down?
Let’s look at the numbers
There are approximately 600,000 retirement plans and in 2016, the Employee Benefit Security Association (EBSA) investigated approximately 2,002 of them., That is 0.3337% of total plans. It’s important to note that of those audited, a whopping 67% resulted in an average monetary correction of $550,000. It’s nothing to sneeze at. However, the point is that the probability of investigation is teeny tiny.
Of working Americans, around 90% have access to a 401(k) plan. That’s 9 out of 10 people – or the overwhelming majority of employed. American workers love their 401(k) plans. In a survey, 91% of households had favorable impressions of 401(k) plans. Okay, that’s good, right?
But wait, there is more! What are the three main benefits that our industry discusses on a regular basis as to why employers should offer a plan? They are to recruit, retain, and reward top employee talent. Plus, they are still a major tax deduction for companies.
If employers do not offer a plan, it puts the onus back on the employee, which creates an immediate savings barrier. For example, did you know that only 18% of Americans annually contribute to an IRA? Therefore, employees need access to an easy-to-operate, transparent and portable retirement solution. One might go out on a limb and say, “Press the easy button, please!”
Another topic proposed across Congressional aisles is to lower the annual 401(k) deduction amount. In 2015, only 12% of plan participants maximized their deductions. Stated another way, 88% of participants did not maximize their contributions. This means that if Congress does lower the annual deduction, yes, it will impact savers; however, the majority of participants would experience no change. Plus, I’m sure if savers want to find another way to save, I’m confident that they will – maybe a cash balance plan perhaps?
Run for Cover
Do you remember 408(b)2 and when some advisors looked at their retirement plan business and said, “Ah, I’m going to wait a bit. I’ll take some time to focus on our [insert other side of business] and then come back to the 401(k) side once the headline news of fee disclosure has cooled off.” Well, if that was you, how is your 401(k) business today? Have the number of clients increased, decreased, or stayed the same? What if you could do it all over again? Would you make the same decision?
Here are two of my favorite Warren Buffett quotes and I believe they ring true with regard to marketing today.
Someone is sitting in the shade today because someone planted a tree a long time ago.
The sooner you start promoting and advertising your retirement plan expertise, the better. It’s like planting a seed. It’s going to take time to develop into your professional reputation. Then as the tree grows, more and more people will come to learn your experience and eventually seek you out to help them with their company’s retirement plan.
No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.
Unfortunately, marketing takes time, organization and persistence. No matter how much you try, success will not happen overnight. Your centers of influence need to develop trust in your services and they will introduce you to their coveted clients. Your prospects will want to know about your experience and what your processes are for helping them with their fiduciary responsibilities and participant engagement programs. Retirement plan committees are going to Google you to find out more about your firm. They will review your website, social media profile(s), and the broader Internet to learn what is said about you. It’s a little intimidating; however, it is completely doable. It just takes time.
If you genuinely want to be in this business, whenever there is hesitation, fear, and caution, it is the perfect opportunity to double down. The reason why is there is room in the marketplace.
Here are few ideas:
Seek out advisors on the fence about what to do with their retirement plan book of business – and buy it from them.
Talk with CPAs and Accountants who sold insurance-based products and negotiate a new deal.
Look for local plans with Corrective Distributions, partner with a TPA, and try approaching with a conversation on plan design.
Know business owners with high incomes? I’m sure they have read the news about the proposed Tax Reform. Start the conversation on other tax-deferred strategies (e.g. HSAs, New Compatibility, Cash Balance Plans, just to name a few).
Then take a look at your current marketing materials – are they awesome? This is the only question you should ask. If they are – great job! If they are anything but, you will struggle. The competition today is fierce. One immediate way you can stand out is through quality, professional marketing. Update your website, biographies, brochures, presentations and case studies. Every single item you share with a client, prospect, or Center of Influence should be a world class representation of what it’s like to partner with you and your firm. You are an expert retirement plan advisor – shouldn’t your marketing reflect that?
What is next?
We don’t know. Most likely, we are going to see waves of lawsuits. They are going to change the way plan fiduciaries document and adhere to their processes. We are going to see advisors enter and leave the business. We are going to (most likely) see the implementation of the Conflict of Interest Rule. However, by then, the industry will mostly likely have embraced working under the fiduciary standard. As for Tax Reform, who knows? Congress didn’t repeal Obamacare. There is already major backlash for the proposal, so we will see there too. What we do know is that time stops for no one.
Focus on what you can impact
Here are two quick examples. We all know that Americans are gravely under-saving and are unprepared, which is a marketing opportunity for retirement plan advisors. One way to get in front of the conversation is through Financial Wellness initiatives and automated plan design solutions.
Surprisingly, for how much the retirement plan industry talks about auto-features, about half (51%) of plans use them. That means half of plans do not. That is a marketing opportunities. Talk about why and how to implement one. Create a case study with client examples that demonstrate the impact of participant outcomes.
Another interesting trend is average deferral rates. In 2016, Fidelity reported average deferral rates of 8.4%, which is up almost 2 full percentage points from previous years. This means American is saving! High-fives all around!
These are two marketing ideas that have nothing to do with lawsuits, regulations, or tax reform. Focus on a topic you are passionate about that genuinely helps the American population achieve the one that a retirement plan is supposed to do – help people retire.
Hope this inspires a little confidence that the sky is not falling; however, we are in a time of change. Embrace it, market through it, and remember someone is sitting in the shade today because someone planted a tree a long time ago. So, let’s plant the first seed today.
Thanks for reading and Happy Marketing!
About 401(k) Marketing
We believe the retirement plan industry can do better. Our clients are the best professional retirement plan advisors and TPAs in the business. They care deeply about saving America’s retirement future. We are proud to share their voices through industry writings, professionally-designed marketing materials (including websites), and expert content collateral. We lend support by promoting businesses through ongoing awareness campaigns. www.401k-marketing.com
About Retirement Plan Marketing
Retirement Plan Marketing is a product of 401(k) Marketing and is an ongoing turnkey marketing solution for retirement plan advisors. It is an easy-to-follow, consistent marketing program designed to get you noticed in your community and generate new retirement plan sales. When you deliver relevant plan sponsor content, you add value to your conversations and can work your way up to become known as the “go-to” retirement plan advisory office. www.retirementplanmarketinginabox.com
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