RETHINKING THE 401(k)
Schwab Retirement Plan Services, Inc., develops a new alternative
For years, there have been efforts to improve the
effectiveness of retirement plans, offering participants
an expanding array of investment choices, plan design
options and education programs. However, many of those
options had limited utilization or sometimes created
confusion for the participants they were intended to help.
PLANSPONSOR recently met with business leaders from
Schwab Retirement Plan Services, Inc. (SRPS), to explore
their approach to meeting this challenge. We talked with
Steve Anderson, senior vice president and head of SRPS;
Catherine Golladay, vice president, Participant Services;
and Dave Gray, vice president, Client Experience.
PS: What do you see as the biggest challenge participants
face today in planning for retirement?
Anderson: For many participants, the greatest challenge
is the level of decisionmaking they’re required to manage.
Participants are responsible for deciding how much to save,
where to invest, and how to keep these decisions current
over time. From industry data, it is clear that this approach is
leaving many 401(k) participants unprepared for retirement. 1
We think it’s time for the industry to rethink how it supports
participants in saving and investing for retirement. While
plans still need to be managed according to ERISA (Employee
Retirement Income Security Act) rules, as we look to the
future, we believe that 401(k) providers should consider
alternatives to a structure based on actively managed mutual
funds and supported by classroom-oriented participant
education. The automatic plan features enabled by the
Pension Protection Act were a start, but the industry now
needs to truly focus on helping participants with services
aimed at achieving better outcomes.
Gray: For years, participants have been asked questions
about how much they need to save, or what type of allocation
is right for them. These may be the wrong questions. What
they should be asked is, “Do you have the time, interest,
and investment knowledge to manage your own retirement
future? If you don’t, would you value low-cost professional
savings and investment management as part of your plan?”
A professionally managed solution can make savings and
investment decisions for participants instead of handing
them a user manual and sending them off to do it on their
own, as has typically been the case in the industry.
Golladay: Traditional education is designed to build a
knowledge base to help participants make informed decisions
for their plan account. But it assumes that participants will
take the next step—and will continue to do so over time.
My experience working with 401(k) participants tells me,
however, that too many participants don’t take that next step