Q&A talks about 401(k) accounts with Mark Goldberg, financial advisor with Gateway Financial in Glastonbury.
Q: A recent USA Today story said most employers that cut back on matching 401(k) contributions during the recession are now reinstating the match. Has that been your experience here in Connecticut and New England?
A: I am finding that most employers who cut back on their match are still not adding a matching benefit. In fact, many are finding ways to still cut back or even cut out the 401(k) completely. I am recognizing no up turn.
Q: What does the lack of reinstatements say about New England? Why do you think companies here seem to be bucking the national trend? Do you think this could change in 2012? Or have 401(k)s become a thing of the past for some companies never to return, like pensions?
A: I think the lack of reinstatements is temporary and it is a national issue, not necessary a New England issue. My feeling is that there is a momentum slowly building and that 401(k)s will be a necessary item for keeping employees happy. In fact, I feel that the level of matching contributions will become an important feature that an employer will be able to offer to employees to keep them happy. However, that trend will be building slowly. Yes, it will start in 2012. No, 401(k)s are not becoming a thing of the past. They are definitely a thing of the future. The one advantage of 401(k)s over pensions is that each employee will have a level of responsibility (They will have skin in the game.) to provide for their own retirement as opposed to letting the employer do all the providing. Most employees underestimate the amount of money needed for retirement, and how important their savings will be in meeting their retirement goals.
Q: How are 401(k) programs doing? Have employees recovered enough to participate?
A: I am finding that the participation level of employees is very high. However, that is because I provide employee education on the importance of saving. Once they start to see their accounts accumulating, they get into the spirit and are increasing their contributions. The employer attitude is very important. If the employer is encouraging employees to save and participate then the employees get into the spirit. If the employer has an “I don’t care” attitude, then the employees seem to feel the same way. The investments within the 401(k)s lately have done quite well. This has sparked a renewed interest among employees.
Q: That brings up another good point. Are employees looking for other avenues outside of 401(k)s for their investments? Are they losing faith in them because of the poor stock market performance of late?
A: If the employees have been educated about the markets, in many cases they haven’t lost faith. I conduct systematic education classes for the companies I work with to help guide them in different market conditions. Employees are putting money into these plans though systematic investments and dollar cost averaging into the markets. It is important that they continue to invest in all market conditions and maintain a diversified allocating. Many employees are setting up retirement vehicles outside of the 401(k) plans. It is important to make sure however, that the employee is maximizing the benefits of any company match and looking at the positive impact of putting money in on a pre-tax basis.
Q: Has participation by younger workers in 401ks changed over the last five years? Are they still significantly under-participating in employer programs? Can something be done to change that?
A: I am finding that the younger employees will participate if someone can educate them. The influence of older employees can not be overstated as to the influence it has on the younger employees. What can be done? One on one encouragement and education as to the absolute need for a huge amount of cash when you retire. They must start young. If there was some type of small incentive for an employer who had 90 percent or better participation, that would encourage the employer to get involved.
Q: What’s on the horizon for 401 (k) programs looking ahead to 2012? Do you see any shifts coming that employees might want to be aware of?
A: I believe that 401(k)s are going to become the Number 1 employer sponsored retirement plan. The cost of administration is getting more competitive and the investment choices are getting better and fees are coming down, thus it becomes a better deal for employers and employees. I also think that most employees are beginning to realize the importance of starting to plan for their retirement as soon as they enter the work force. Employees are more and more frequently asking about what type of retirement plan an employer offers when they apply for employment.
The only shift I see that employees might want to become aware of is the availability of Roth 401(k)s. It should be looked at very carefully as an excellent alternative to the traditional 401(k).
