Last month, we brought on a new client who was going through a provider change. During our interaction with their employees, we were shocked to find what their old 401k provider DIDN’T offer compared with what their new provider DID. For the sake of full disclosure, we tend to be a little naive in assuming that certain features are a given when it comes to the capabilities of 401k provider websites. That being said, it’s 2011. I can order a burrito from my phone. Thus, the following is a list of basic online tools (in our naive minds) that we have found participants enjoy, and quite frankly expect in today’s digital age:
- Online Contribution/Deferral Increases – This functionality is available in a handful of the plans we work with, in which a participant can change the amount they are contributing to their account with a few clicks of the mouse. In our experience, investors are much more likely to increase their contributions if…and this is key…it’s easy to do. In other words, no more getting the form from HR. Contrary to popular belief, a lot of participants want to do the right thing and save, so let’s make it easy for them to do so. The pain-in-the-tail paper forms of old allow the opportunity for too many investors to shrug off saving more due to it being considered a nuisance.
- Online Annual Contribution Increase – On the same note as #1, the auto-increase function allows the participant to activate an automatic increase of 1% – 3% at a specific date of their choice. The benefit is that if they forget to increase their savings annually, just as most forget to rebalance their portfolio, the system will automatically do it for them specific to the investor’s preference. Now, if they would just remove the 10% auto-increase contribution cap , but that’s another conversation…
- Take-Home Pay Calculator – Whatever you want to call it, it answers the question of “how much will it cost me to increase my contributions?” If an investor can get a feel for approximately what a contribution increase will cost them from their check, they are much more likely to take action. Times are tough, but this tool helps people understand whether they can ‘afford’ to increase their deferral rate. It doesn’t need to be pretty, just effective. Our favorite is a plain brown box, but it is simple, quick and effective.
- Custom Date Portfolio Returns – We have seen some very large plans’ providers that do not offer this feature, and it is kind of stunning. In our own selfish interests, we use this feature to help investors determine their risk/reward objectives during our 1on1 consultations. It is very powerful and another tool that participants simply expect in today’s technology environment. Can a participant see how the amount of risk in their portfolio affected them during the downturn of ’08 and early ’09? When the market began it’s rebound on March 9, 2009 through the end of ’09? We understand this is pretty complex with contributions, but…again…I can order a burrito with my phone. My. Phone.
- Basic Diversification of Stocks/Bonds in Portfolio – The vast majority of 401k plans have actively managed mutual funds/investment options available. The underlying mix of stocks, bonds, cash, etc. can and often does change throughout the year. Hence, providing participants an idea of what their underlying basic diversification is of US Stocks, International Stocks, Bonds and Cash is very important so they can better understand their situation. Seeing a list of funds an investor invested in is one thing, providing them some basic information on the make-up of that portfolio is another. This is another feature that we are blown away not to see with some provider sites. NOTE TO PROVIDERS: User percentages, not just hard dollar amounts. Keep. It. Simple.
As you can see, each of these features can greatly benefit participants as well as those trying to help them understand what is or isn’t happening with their retirement account. Give them the tools, and they will act. Are there any we missed that you would add to this list?