The 401(k): Now So Much More Than a Retirement Plan

The expanded flexibility of 401(k) plans — thanks to the Secure and Secure 2.0 Acts — is driving the evolution of the industry. For example, participants can now access funds for immediate needs, not only for retirement income.

Unsurprisingly, "much of the workforce isn't necessarily concerned about retirement. They have more pressing concerns," Jeanne Sutton, financial benefits advisor at Strategic Retirement Partners, argues in an interview with ThinkAdvisor. "With ballooning student debt [for instance], they're far more worried about a $40,000 student loan balance than retiring in 40 years."

Sutton, known as "The 401(k) Lady," consults with companies, institutions and individuals, serving up education, coaching and available options.

Strategic Retirement Partners' clients include Fortune 500 companies, public and private firms of all sizes and government-supported quasi-public organizations, like hospitals, rehabilitation centers and utilities.

In the interview, Sutton provides an overview of the 401(k) plan's evolution from strictly a retirement plan to what is now "a financial benefit" that employers offer that can be used to meet current needs.

And more changes are on the way, she maintains.

"The 401(k) business will be very different from what it is today," Sutton says, noting "a push for pensionization" turning that "big nest egg into a regular monthly paycheck."

An ambassador on the Certified Financial Planner Board of Standards for the past nine years, Sutton joined SRP in 2019 from ARGI Financial Group, where she was a financial planner for more than a decade. She is a popular speaker, especially in the area of continuing education for associations and human resources groups.

In the phone interview with Sutton, who was speaking from her base near Nashville, Tennessee, she demystifies qualified default investment alternatives and highlights the benefits of solo 401(k)s.

Here are excerpts from our conversation:

THINKADVISOR: What's the newest thing happening in the world of 401(k) plans?

JEANNE SUTTON: A push for pensionization for the 401(k). The industry has done a great job with the front end — automatic enrollment, getting people to save and invest.

But we're realizing that at the back end, most people don't really know how to turn more money than they've ever had in their lives into a retirement paycheck.

So there's a lot of conversation around what can we do to the 401(k) plan to turn that big nest egg into a regular monthly paycheck as you would have had with a pension.

Who's talking about it?

Everybody — including the record keepers — and there are new products and types of investments that can go into plans to accommodate [that change].

Ultimately, the plan sponsor would decide if they want to offer it or not.

Wouldn't pensionization conflict with financial advisors who want to do rollovers?

It absolutely would. If you're an advisor who is pushing for a rollover and that's how you manage money, it would conflict with that.

But these ["pensions"] would be for those who want to do it themselves or can't afford an advisor or don't even know where to go.

This is just getting started and isn't having an impact on advisors [yet].

Looking ahead, what else can we expect from the 401(k) industry?

The 401(k) business will be very different from what it is today. We're on the cusp of that. These plans with rules and restrictions that say you can't access the money till retirement are evolving.

Plans are being changed to where you can access them before retirement for other things.

Your previous job title was "retirement plan consultant." Now it's "financial benefits advisor." Is that revision a result of the changes?

Yes. It's a nod to the evolution of what was previously a retirement plan to a financial benefit employers offer that addresses not only long-term financial needs but also more immediate financial needs.

[The goal of the job title change] is for clients and prospective clients to recognize that we can help them with so much more than just a quote-unquote retirement plan.

For instance, student-loan repayment programs and emergency savings accounts.

What prompted this expansion?

The evolution is being driven by Secure Act 1.0 and Secure Act 2.0, the two pieces of legislation passed in the past few years that added flexibility to the traditional retirement plan

Have plan sponsors made employees aware of this expansion?

Yes. But the sponsors have to [decide] how they want to design their plans.

With the increased flexibility, each employer is trying to decide what they want to adopt. They don't have to adopt it all.

What do you think employees would like?

We're hearing from clients and employers that much of the workforce isn't particularly concerned about retirement. They have far more pressing concerns.

Such as?

With inflation and the pandemic, they're living paycheck to paycheck. With ballooning student debt, they're far more worried about a $40,000 student-loan balance than they are about retiring in 40 years.

What has been employers' response?

HR [departments] are struggling to recruit and retain good employees. Everyone is looking at their benefits package with a fresh eye as to how they can use the existing dollars to mean something that's more of a priority to the employees than just retirement.

Do 401(k) participants have the option to call you with questions specific to their plan?

If we're engaged by Company ABC as their retirement plan advisor and an employee has a question about their account, they can absolutely call us.

We actually log into their account with them, look at the individual investments and coach them through it.

Do they ask about rolling over their 401(k) to an IRA?

We get all kinds of questions: "Should I roll it over?" Or "I have an old 401(k), should I roll it in?"

Many people automatically enrolled in a 401(k) automatically start saving. When it comes to investing their money, please explain what a qualified default investment alternative is.

If they haven't chosen an investment, it's up to the employer, the plan sponsor, to choose an investment for them. That carries liability.

So there has been guidance from the Department of Labor on what would be an appropriate default investment. Those are QDIAs.

Who's eligible to open a solo 401(k)?

Self-employed people and anyone who has a company with no employees.

I like solo (k)s because they have the benefits of a 401(k) but are easier to administer, like an IRA.

You can save more with a solo (k) too than with an IRA. The contribution limit to a solo (k) is the same as a 401(k).

This year it's $23,000 for those under age 50, and those over 50 get a $7,500 catch-up.

For which types of business owners would a solo 401(k) be most appropriate?

Any business owner that has a unique financial plan compared to most other people: for example, physicians and dentists.

Their businesses themselves are typically a very large part of their personal financial plan. They have the ability to sell it at retirement and collect that asset.

It's a very different type of plan, and they have a lot more planning opportunities using their business with a solo (k).

Incidentally, how did you get the nickname, "The 401(k) Lady"?

I was at a client site having individual meetings in the breakroom, and a participant walked in and said, "Hey, is that 401(k) lady still here?"

I said, "I'm here, and I really like that name. I think I'm going to take it!"