Less is More

The steps plan sponsors are taking to cut the fat off their investment offerings is just one example of how focused many are becoming on drilling down to the nitty-gritty details of what needs to be done to make retirement plans more effective, regardless of the law. Plan sponsors are, for example, placing a great deal of emphasis upon nailing down the different fees they are paying and demanding transparency from their providers, Katz says. And many are taking the extra step to spur participants to become more involved with their individual retirement plans by enacting re-enrollment measures. "They're telling people that if they don't re-enroll by a certain date, they will be automatically defaulted to a qualified retirement plan, which means that if people want a more conservative option, they will have to do the work and figure it out for themselves," he says. "This is good because many people who don't do anything will actually remain in a better, less conservative fund."

But even if it seems that plan sponsors are now shaking things up, professionals like Darwin Abrahamson, CEO of Portland, Oregon-based Invest n Retire, believe there is still a lot of ground to be covered. Rather than aiming for the kind of holistic overhaul that new rules call for, many advisors are just changing parts of their overall plan and modus operandi as and when they receive new guidance, Abrahamson says. "Plan sponsors still haven't realized that major changes are what's going to be most advantageous to them and to their participants," he says.

In addition to getting a good handle on fees and lining up a sensible array of investment options for participants, Abrahamson also believes that plan sponsors need to be spending a lot more time and effort than they are on implementing automatic enrollment, a feature that will, in any case, be required by law in January 2008. Almost every 401(k) plan suffers both from low participation rates and under contribution, he says, but implementing automatic enrollment can take care of both.

"Every plan needs to look at adopting automatic enrollment with existing employees to increase both participation and contribution," Abrahamson says. "It's a win-win situation for all, but unfortunately, there is still little work being done out there to educate plan sponsors as to the advantages of automatic enrollment."