Focusing on What Matters in 401(k) – Plan Performance

DOES YOUR BUSINESS plan include goals specifically focused on improving the value you bring to your customers?  Do you have a strategy to help advance plan participants’ retirement readiness?   If not, it may be time to take a fresh approach with your customers and simply ask, “What do you need from me?”  Granted you may not receive an exact answer, but you can be prepared to uncover needs and, more importantly, offer strategies to help resolve them. 

In many ways, The Pension Protection Act of 2006 (PPA) is supportive of an advisor’s business model, because you may be best situated to discuss the new provisions with your clients.  With this legislation came an increased awareness that many Americans are ill-prepared for retirement, and there are many industry efforts underway working to provide potential solutions.   However, many small- to mid-sized business owners require education to help them understand how their own employees are faring and what options they have available to them.  This presents an opportunity to evaluate your clients’ 401(k) plans and strategize actions that may need to be taken.

Do you know how each of your client’s 401(k) plans is performing and how prepared their employees will be for retirement?  Remember, performance should not be restricted to investment results.  Investment performance is important, but another critical aspect to helping ensure participants’ retirement readiness includes three essential and measurable areas: plan participation, deferral rates and asset allocation.  If you think your clients’ participants are on track for retirement - beware – averages don’t necessarily tell the full story!  According to Fidelity’s proprietary research report Building Futures Volume VII, average participation rates are 66%, and average deferral rates are 6.9%.¹   However, when we dig deeper the data becomes more revealing.  For instance, younger employees (ages 20-29) are only participating at 37% and with an average deferral rate of 5.9%.^{1, 2}   In addition, 16% of this same age group did not hold any equities in their portfolio, while 54% held a single fund (excluding a Fidelity Freedom Fund).³

Have you looked deeper than the averages to determine the retirement readiness of your clients’ plan participants?  Are you able to proactively identify those plan employees that may need help and develop creative strategies to address them?  Do you have the tools you need to track and measure your efforts?  

Here are three action steps you may want to consider to help you reinforce your value to plan sponsors and help them meet their plan objectives. 

1.  Diagnose your client’s Plan Performance with customized reports that include:

• Participation rates by age group
• Deferral rates by age group
• Single fund holders by age group
• Industry benchmarking to compare companies of similar size and industry

2.     Evaluate Plan Design and Service Strategies

• Auto Services (auto enrollment, automatic increase program, auto default options)
• Lifestyle funds
• Personalized communication & education

§         Participation campaigns for those not taking advantage of the plan

§         Maximizing deferral campaign for those who are contributing at 6% or lower

§         Asset allocation for single fund holders

§         Dedicated education meeting solutions; in-person and technology based 

3.     Measure the effectiveness of your strategy

§         Evaluate plan performance success over time

§         Communicate results regularly to your clients

For more information please contact the Fidelity Advisor Retirement Sales Desk at 800-684-5254 or visit advisor.fidelity.com/401k

^{1 Source: Building Futures Volume VII, Fidelity Investments Institutional Services Company, Inc., 2006. Data as of 12/31/2005}

^{2 Continuous contributing eligible employees were those in plans for which NDT was performed in both 2004 and 2005, and who made pretax contributions both years.}

^{3 Fidelity Freedom Funds are managed by Strategic Advisers, Inc., a subsidiary of FMR Corp.  The Fidelity Freedom Funds are subject to the volatility of the financial markets in the U.S. and abroad and may be subject to the additional risks associated with investing in high yield, small cap and foreign securities.}

For investment professional use only.

Not NCUA or NCUSIF insured. May lose value. No credit union guarantee.

Before investing, have your client consider the funds' investment objectives, risks, charges, and expenses.  Contact Fidelity for a prospectus containing this information. Have your client read it carefully. 

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Fidelity Investments Institutional Services Company, Inc., 82 Devonshire Street, Boston, MA  02109

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