5 Steps to Improve 401(k) Plan Participant Outcomes

The vast majority of retirement plans fail to provide an adequate benefit for one simple reason: they put too much responsibility on the employee. Most employees have never been trained or prepared to assume the important role of building an adequate retirement benefit. In fact, the purchase of lifetime retirement income is the largest financial transaction most people will ever make. For most, this “liability,” or amount of money needed to pay for their retirement, is two to three times larger than their home purchase.

“The vast majority of retirement plans fail to provide an adequate benefit for one simple reason: they put too much responsibility on the employee.”
-Dr. Gregory Kasten

As a practicing physician, Dr. Gregory Kasten entered the money management business in the mid-1980s out of sheer frustration. “Most of the advice I received from local stockbrokers was sales-oriented, slick, non-transparent, and generally not good advice,” he says. “Coming from a medical background, I was very interested in a high standard of care, best practices with an outcomes-driven process.” Before long, Dr. Kasten found himself helping his colleagues manage their portfolios. His innovative ideas and analysis proved so successful that in 1985 he launched his own advisory business. Today, Unified Trust Company helps investors manage over US$2 billion in total assets.

The latest innovation at Unified Trust is the UnifiedPlan. The UnifiedPlan is a new personalized financial solution designed to more reliably provide each individual with a dependable stream of income at retirement. It implements five basic steps:

Five Steps to Improve Retirement Benefit Adequacy

1. Fiduciary Loyalty to Participant

The cornerstone of Unified Trust’s track record of building successful financial outcomes is their charter as a national fiduciary. One of only a handful of national trust companies in the U.S. today, Unified puts its clients first and must always use a “prudent expert” standard of care.

Why is being a national trust company so important? The short answer: fiduciary discretion. Unlike a directed trustee, Unified Trust is a discretionary trustee. This means that they take responsibility for the selection, monitoring and retention of plan investments. They are bound by ERISA prudent-expert rules and maintain well-documented records on behalf of all plans and participants. Because discretionary trustees control investment choices, they are held to a higher standard of fee disclosure and good faith action.

But their role goes well beyond merely providing liability protection. Unified Trust can take a hands-on approach to managing investors’ portfolios to help guide them down the right path.

2. A Defined Goal for Every 401(k) Participant

Unlike any other 401(k) plan being offered today, UnifiedPlan starts by defining a personalized retirement goal and approach for each participant. Since most employees have no goal for retirement, Unified Trust gives every individual a specific target: replace 70% of their pre-retirement income, as near as possible to their Social Security retirement age, with the least amount of risk.

The UnifiedPlan offers greater protection to the plan sponsor since it operates as a Qualified Default Investment Alternative (“QDIA”) managed account, but is more effective than a target-date fund.

3. A Portfolio and Actuarial Time Solution Tailored to Each Participant

“A 45-year-old underfunded participant has much different liquidity, return, and cash flow requirements than a same-age participant who is overfunded and on track for a comfortable retirement,” says Dr. Kasten. For this reason, Unified Trust’s UnifiedPlan combines “intelligent defaults” such as automatic enrollment and savings increases with fiduciary actuarial oversight and targeted, intensive education and advice.

While target-date mutual funds are an improvement over participant-directed investing, they are by no means the complete solution. The “one size fits all” approach to target-date investing ignores the funded status and risk tolerance of individual 401(k) participants. Similar-age participants may be different in ways that no target-date fund can detect.

Target-date funds operate in one dimension by adjusting the asset allocation timeline. The UnifiedPlan operates in three dimensions by adjusting asset allocation, controlling risk and finding a time-based actuarial solution for each employee. Rather than bombard participants with complex questions, the personal actuarial solution is presented as the pre-formatted “answer” to each employee in the enrollment meeting. Participants who want to add more information about their risk tolerance or outside assets are encouraged to do so.

4. Periodic Course Corrections

Over time the account benefit projection of the participant must be tested to assure that the portfolio remains both prudent and on-target. The UnifiedPlan automatically tests every portfolio and makes investment and actuarial corrections by looking at both the asset and liability.

5. Prudent, Dependable Lifetime Income Solutions

It is not enough to have saved a lump sum at the start of retirement. The lump sum must be converted into a dependable income stream that may need to last several decades. The plan participant must be protected from bad markets, inflation and longevity risk.

“The overall impact of the UnifiedPlan defined-goal 401(k) plan,” says Dr. Kasten, “is to create a near ‘pension-like’ lifetime experience for each participant, with much greater retirement income security.”

 “Ordinary consumers must make extraordinarily complex financial decisions on a daily basis,” notes Dr. Kasten. “Yet there is now growing evidence that consumers are overwhelmed when they make many consequential economic choices.” For this reason, Unified Trust’s proprietary Unified Fiduciary Monitoring Index® provides an effective “bright line test” to help determine the quality of a fund or investment manager, giving a balanced, long-term evaluation of each investment relative to its peers, not on short-term investment results.

“The retirement of the Baby Boom generation, some 75 million people, is now at hand,” says Dr. Kasten. “Having a reliable process to deliver lifetime income, that protects their lifestyle, will be the delivery of the ‘promise’ that started some 25 years ago.” This can be delivered via fiduciary best practices geared towards meeting the defined goal.