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DEBUNKING 401(K) MYTHS Myth #1: “We’re all set”

Over our years working with business owners and employers, we’ve encountered a number of common myths that plan sponsors hold on to despite proof to the contrary. These myths can be harmful to plan sponsors and employees alike, and here we aim to debunk some of the most frequently occurring offenders.


Myth #1: “We’re all set.” Plan sponsors use this phrase often to describe their level of satisfaction with their plan. It also serves as a roadblock to any discussion regarding potential improvements to their retirement plan offerings. “We’re all set” – “everything is fine; nothing needs to be changed.” Unfortunately, this is generally anything but the case. There are two key elements that demand careful examination: fiduciary awareness and retirement readiness. 


Nearly half (49%) of plan sponsors don’t recognize their status as fiduciaries.[1] Unawareness of your position and/or responsibilities is a good way to get hit with unexpected complications down the road. Here’s a quick guide to help you determine whether you are a fiduciary, and if so, what your responsibilities are:


Am I a fiduciary?

  1. Are you named in plan documents as a fiduciary?
  2. Do you exercise control over the management or administration of the plan or its assets?
  3. Do you provide ongoing investment management or advice to the plan or plan participants?
  4. Do you select or supervise other plan fiduciaries?
  5. Do you sit on a committee that manages the plan?


What are my responsibilities as a fiduciary?[2]

  1. Act solely in the interest of plan participants and their beneficiaries
  2. Prudently carry out your duties
  3. Follow plan documents (unless inconsistent with ERISA)
  4. Diversify plan investments
  5. Pay only reasonable plan expenses 



How prepared are your employees to retire? According to BlackRock’s annual DC Survey, plan participants are almost universally confident about their overall financial situation, but over half of plan sponsors are concerned:[3]

 Participants confident, Plan Sponsors Concerned 

This startling gap in confidence might stem from many factors. Many employees might simply not know enough to accurately evaluate their financial situation; 81% of Americans say they aren’t sure how much money they'll actually need in retirement. [4]  Alternately, they might believe that plan sponsors are solely responsible for their retirement: during a recent employee education meeting, we were approached by an employee who asked, “isn’t the company required to pay for everything?” After addressing the employees’ misconceptions, we worked with the plan sponsor to implement automatic plan design features and rolled out a more robust employee education program to help motivate savings.


Plan Design

As a plan sponsor, you control one of the most powerful savings vehicles available to your employees. To help your employees harness that power, you might consider enhancing your plan with Auto-Increase, or an enhanced employer matching formula.


Auto-Increase allows participants to automatically increase contributions little by little each year– typically by 1%. One percent per year may not seem like much, but it adds up over time!

Flat Rate Vs Auto Increase

*This illustration uses a hypothetical 7% rate of return. It is not representative of any specific situation and your results will vary.

The hypothetical rate of return used does not reflect the deduction of fees and charges inherent to investing.


 If your plan uses a typical match formula of dollar-for-dollar up to 3% of pay, you might want to consider Stretching the Match. For example, you could match fifty cents on the dollar up to 6% of pay. This simple scenario would increase employee savings while keeping employer contributions the same (3% of pay).

 Traditional Match vs Stretch the Match

Employee Education

Employee education sessions can be effective! The secret is to make them relevant to your employees: use the time to get them excited about financial wellness programs and incentives, incorporate retirement readiness concepts, discuss auto-features and match formulas, and even debunk some common 401(k) myths (e.g. “isn’t the company required to pay for everything?”)

Understanding and fulfilling your fiduciary duties and moving your employees toward retirement readiness are two ways to help ensure that your plan truly is “all set.” But these aren’t “one-and-done” tasks. We work closely with employers to help them meet their fiduciary duties and keep their employees educated and engaged. For more information on how Financial Management Network can help you build a prudent fiduciary process and dynamic employee education, contact us today!


Curtis Farrell CFP AIF
949.455.0300 x222
Investment advisory services are offered by Financial Management Network, Inc. (“FMN”) and securities offered through FMN Capital Corporation, (“FMNCC”), member FINRA & SIPC.
This article was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational presentation.

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