The “Rothification” of the Investment Industry



Even before President Trump’s tax reform legislation was finalized, rumblings of limits to 401(k) contribution amounts gave credence to “Rothification” impacting the investment industry.

If such proposals had passed, this would have reduced the amount of pre-tax money that people could contribute to their 401(k) plans, while freeing up spending money for the government.

But the industry is already seeing a rise in the conversion from some or all traditional defined contribution plans to Roth-like plans, hence the movement being coined Rothification. The results have sparked a debate about the pros and cons of moving in this direction.


Proponents of the increased reliance on Roth 401(k)s and IRAs point to the tax benefits later in life for retirement savers.

These savers will sacrifice a tax break today, so that they can avoid paying taxes when the money is withdrawn from their savings in retirement.

There are also estate planning benefits, because there are no required minimum distributions (RMDs) on Roth IRAs. Roth 401(k) accounts rolled over to Roth IRAs would also receive such benefits.


Many financial advisors fear that Rothification would lead to reduced retirement savings at a time when Americans can ill-afford to do so.

The loss of the income tax deduction would cause worker’s take-home pay to be reduced.

This could, in effect, limit the cash-flow available for 401(k) contributions and other retirement savings.

Consider Taxes

Roth accounts certainly offer solid options for retirement saving. While the benefit of tax savings down the road in retirement can seem distant, the reality is that many retirees may find themselves in a higher income tax bracket in the future.

Many also see Roth accounts as a way for retirement savers to diversify their retirement accounts’ tax profiles, in efforts to be prepared no matter what tax rules are passed in the future.

In the Meantime

Financial advisors should consider how Roth accounts can make sense for 401(k) plan sponsors and their employees.

We haven’t seen the last of the Rothification movement, so it’s best to first be educated, and then be prepared for what’s next.

Vestwell does not offer tax advice, please consult your tax professional, as necessary, related to any tax-related topics.  

This Tax Benefit Can Get Your Client Over the Fence About Starting a Retirement Plan

It’s time to discuss whether your small business owner should start offering a retirement plan.*

You might be able to garner more interest on the topic by showing what tax benefits are included.

The tax credit, a dollar-for-dollar reduction of the company’s income taxes, might just be enough to get your client over the fence.

Credit for Small Employer Pension Plan Startup Costs

If certain conditions are met, your client can claim a deduction for the start-up costs of a new retirement plan, of up to $500 per year for the first three years of the plan, for a maximum of $1,500.

The plan must be a qualified retirement plan, SEP-IRA, or SIMPLE.

Is Your Employer Eligible?

According to IRS rules, eligible employers must:

  • Have fewer than 100 employees who received at least $5,000 in compensation for the past year
  • Have at least one non-highly compensated employee in the plan
  • Not have contributions or accrued benefits from another qualified retirement plan from the same company or as part of a control group, for this same group of employees, for the prior three years before this plan was put in place

The Tax Credit

The amount of the credit is 50% of the normal start-up costs for the plan each year, up to a limit of $500.

Eligible start-up costs include:

  • Costs to establish the plan
  • Cost to educate your employees about the plan

The credit may be claimed for each of the first three years of the plan, and businesses may choose to start claiming the credit in the tax year before the tax year in which the plan becomes effective.

It is also part of the general business credit and may be carried backwards or forward if it can’t be used in the current tax year.

There is no “double dipping,” i.e., the same costs used for the credit cannot then be deducted as a business expense.

Retirement plans offer a number of benefits for business owner and their employees.

Mention the $1,500 tax credit benefit to your small business clients, and you might be able to get them over the fence about offering a retirement plan to their employees.


The opinions expressed in this article are those of the author, and do not constitute any service or obligation of Vestwell Holdings, Inc or its affiliates.

*Vestwell and its affiliates do not offer tax advice

Are you about to lose your client? Maybe, if you’re not managing these top 3 problems

A new Fidelity Investments “2017 Plan Sponsor Attitudes” study shows that 4 in 10 plan sponsors say they want new advisors. Nearly half of your book of business may be at risk.

That change in advisors could set some $1.3 trillion in defined contribution assets in motion.* But it’s also an opportunity.

You now have the chance to win the same percentage of plans away from your competitors.

To gather this information, Fidelity surveyed 1,106 plan sponsors responsible for plans with at least 25 participants and between $10 and $250 million in assets. Some, but not all, of the respondents were Fidelity recordkeeping clients.

“The stakes for plan advisors have been raised,” according to Jordan Burgess, head of specialist field sales for Fidelity Institutional Asset Management.

How can advisors protect their existing book of defined contribution business — and ensure they get a slice of that $1.3 trillion in moving assets?  

By addressing the issues that plague plan sponsors most, the top three pain points for company owners who offer defined contribution plans.

Plan Sponsor Pain Point #1: I’m not sure I’m fulfilling my fiduciary duties.

Most plan sponsors know they have to manage their company’s plans to serve participants’ best interests, but few understand exactly what that means.

Your ability to explain their fiduciary duties—and, if possible, take on some of these duties in their place—can go a long way to assuage these concerns.

Working with Vestwell, for instance, solves this problem. Vestwell can take on fiduciary responsibility for your clients and provide ERISA Section 3(16) fiduciary plan administration services, as well as 3(21) or 3(38) fiduciary investment management services.

Plan Sponsor Pain Point #2: My plan’s investment options may not be performing well enough.

More than a third (36%) of the plan sponsors in the Fidelity survey replaced at least one underperforming fund last year.

Plan sponsors understand that they are responsible for offering participants a sound, well-managed array of options.

But most company owners and HR professionals don’t have time to continually monitor investment performance.

You can help them by providing a competitive analysis that shows how their investment menu compares with other companies in your industry through Vestwell.


Plan Sponsor Pain Point #3: My plan costs too much in fees.

Keeping fees reasonable is a big part of any plan sponsor’s fiduciary responsibility—and it’s a moving target since the fee landscape has been changing rapidly over the last several years.

You can set a plan sponsor’s mind at rest by offering a competitive analysis of plan fees through Vestwell.

This analysis will show whether a plan is paying more, about the same, or less in fees than similar sized plans in the company’s industry.

To capture your share these assets in motion, you’ll need to offer in-depth retirement plan expertise, insightful plan design, quality, cost-effective investment options and advice, and guidance on fiduciary responsibilities.

Vestwell can help you meet their needs with streamlined, cost-effective plan design and the ability to take on fiduciary responsibility.

For more on how we can help you make the most of this opportunity, visit


*Fidelity Investments, 2017 Plan Sponsor Attitudes

3 Types of Advisors That Can Benefit from 401k Plan Automation

Talk to advisors on the floor of any major financial advisor conference, and you will see that there are many kinds of advisor practices. Lifestyle or high-growth, niche specialty or generalist, local or location-independent, the variety is endless. And yet, most advisors have one thing in common. They chose their profession because they wanted to help clients by empowering them to make better financial decisions.

The exhibit hall of the same conference will reveal that the FinTech industry has numerous tools and automated systems to support advisors in their quest to help. Modern financial planning platforms make it easy for advisors to scale their practices and support a large number of clients.

Unfortunately, when it comes to helping companies that sponsor their own retirement plans, the 401k industry makes it difficult for advisors to help. A lack of standards, confusing terminology and limited fund choices contribute to an environment where many advisors find it is easier to just avoid servicing retirement plans.

That is a big loss for their practices, their potential clients and the industry overall. When done right and assisted by modern technology, a 401k offering can be a powerful differentiator and a strong contributor to an advisor’s bottom line.

From our years of experience helping advisors, we have learned that there is no single “right” way to manage 401k plans. Some professionals dip their toe in, while others choose to become 401k specialists.

These three case studies highlight some of the struggles advisors encounter with 401k plans and how technology can help them scale.

“Newbie Newman”

“Newbie Newman” is an advisor who never worked in the 401k space. Of course, he is familiar with retirement saving plans. He has a few wealth management clients who are small business owners, and a few have asked him if he could manage their 401k plans.

However, Newman is hesitant to take the first step. The complexities of the DOL Fiduciary Rule, conversion horror stories, and the intricacies of fiduciary responsibilities make it seem like adding plan sponsor clients is a lot of effort for an uncertain payoff.

How can 401k plan automation help Newman?

With a turnkey technology solution, Newman would not have to become an instant fiduciary expert. The software will take care of the most complicated parts of 401k plans. With all the necessary elements to manage a 401k plan in one place, it is easy to get organized and structure the workflows.

New plan sponsors can be onboarded in 30 minutes or less, and their employees can be enjoying the benefits of a new plan within 30 days. With technology handling the heavy lifting, Newman is free to focus on serving his clients and building new relationships.

Outcome: Newman is now a holistic advisor because he can offer 401k plan management to his business owner clients.

“Generalist Gerry”

“Generalist Gerry” is an advisor with a handful of 401k plan clients. While he has been servicing them for a few years, there are days he wishes he didn’t have to. Figuring out the right partners was tough enough (TPAs? RKs? Corporate trustees?) but now, the ongoing effort spent to service the plans is a painful reminder of the day he chose to take them on as clients.

Somewhere between manually filling out forms, faxing hundred-page adoption agreements and dealing with call centers, Gerry realized that large record-keepers and Third-Party Administrators don’t provide the level of support he requires.

On a good month, Gerry spends between 10 and 15 hours laboring with his three plan clients. A simple request from a participant for a loan from her 401k can take an hour or longer to fulfill!

How is he supposed to grow his business if the model does not scale?

“There must be better way,” reflects Gerry as he waits on hold with the record-keeper. In the hour it takes him to get to a real person, he could have made several follow-up prospect calls!  

The good news is that there is a better way. The right technology platform can bring all the key players together in one “virtual” room. There is a single point of contact for onboarding and other critical tasks. Your dedicated relationship manager is always there to answer your questions on anything from tech support to administrative details.

Modern technology solutions for 401k plan management offer true white-glove treatment for loans and rollovers. They automate filling out paperwork and guide you through the process so you won’t have to Google confusing acronyms.

Even better, participants can submit online forms to change their contributions or request loans without requiring a phone call to your office.

Outcome: Plan participants are happier since administration is simple and their needs can be addressed in a timely manner. Gerry is happy since he no longer has to deal with multiple points of contact, and his workload is dramatically reduced. Perhaps more 401k plan clients are in his future?

“Specialist Stephanie”

401k plans are a significant part of “Specialist Stephanie’s” book of business. She services 30 retirement plan sponsors, many of them large and sophisticated.

Stephanie would love to create her own model portfolios and present custom strategies for her clients. Unfortunately, some record-keepers are also fund companies, and they prefer to restrict her plans to using only their funds. Since there are so few options, there is little chance Stephanie will be able to create custom-tailored portfolios for her discerning clients.

Additionally, planning for quarterly client meetings has become a chore for Stephanie. Plan information is often difficult to locate, and many plans do not have participant-level data. Stephanie spends hours trying to dig up relevant details and explanations, and every quarter the burdensome process repeats.

Stephanie’s other problem is branding. Even though she manages client relationships and is building her brand as a 401k specialist, Third-Party Administrator and record-keeper brands are the only ones visible to her clients. Stephanie’s name and logo are nowhere to be found, so plan participants never get to know her! This will be a problem if a participant leaves to start his or her own company, since they don’t have a direct connection to Stephanie.

Finally, tracking assets under management and investments is cumbersome. Stephanie’s sponsor clients are spread across 10 different record-keepers and custodians. If she wants to manage and see her overall AUM, she must log in to each record-keeper’s platform separately, write down the AUM and enter the number into a spreadsheet.

Keeping track of over a dozen login credentials for different plans is a hassle, and the process of monitoring investments is excessively time-consuming. Since managing each plan takes so long, Stephanie has little time for plans with less than $1M. Turning away potential clients is always painful.

The good news is that a turnkey platform can be an easy solution for the smaller plans. The advisor can make up to $7,500 per plan each year with minimal upkeep time. Adding 10 plans can create an additional $75,000 in annual income with very little additional work required!

In choosing the right platform, Stephanie should look for one that offers the simplicity and convenience of a single point of contact. Vendors like Vestwell fulfill the roles of both record-keeper and Third-Party Administrator, making it easy for Stephanie to manage multiple plans. There is only one place to go to gather data on the plans and prepare for quarterly meetings.

The right platform will also allow Stephanie to build her own models and strategies. A stronger and more flexible menu of investment options, which is not limited by the interests of fund companies, is exactly what she needs!

Best of all, a modern solution will allow Stephanie to finally build her own brand as a 401k specialist. Plan sponsors and participants will log in to Stephanie’s white-labeled website. Participants that go to another company or start their own business will know Stephanie’s name and can contact her to set up their 401k plans, no matter what’s next for them.

Outcome: Stephanie can spend her time and energy on maintaining client relationships. No more chasing down forms or combing websites for performance data! Clients get personal treatment that makes Stephanie look good. After all, a modern platform like Vestwell works as an extension of Stephanie’s firm.

Winning the 401k space with modern technology

You might be curious about 401k plans, have a handful of plan sponsor clients, or run a specialty 401k practice. No matter which case study you currently associate with, the right technology can help you serve your clients better, improve your workflows and scale your practice.

The three cases we chose are just examples from a broad range of advisor practices. We know that your firm is unique. The Vestwell team is here to make it easy for you to service retirement plans, whether you are Newbie Newman, Generalist Gerry, Specialist Stephanie or someone in between!

Your guide to end-of-the-year 401(k) notices

The final quarter of 2017 has arrived, and with it the reminders of important year-end notices for retirement plan sponsors. Here’s a quick guide to some important notices, and why they matter:

October 1: Safe Harbor establishment

The deadline to establish a new safe harbor 401(k) plan for 2017 was October 1.

For those companies still wanting to contribute to a retirement plan for 2017, they might consider establishing a profit-sharing plan for this year, and then starting a safe harbor 401(k) plan early in 2018.

For those unfamiliar with safe harbor plans, the main advantage is that they provide a means for business owners and highly-compensated executives to contribute the maximum amounts to their 401(k) accounts.

This can, at times, create a problem if the company’s workforce does not contribute enough for the plan to pass its various discrimination tests regarding the amount deferred by the highly comped, versus non-highly compensated employees.

In exchange for enhanced matching or a contribution for all employees that is immediately vested, the highly comped employees are not restricted in the amount of salary they can defer, up to statutory plan limits.

In summary, these plans can greatly enhance the ability of business owners and highly- compensated employees to save for their own retirements.

November 1: SIMPLE conversion to a 401(k)

For employers offering a SIMPLE IRA who want to convert the plan to a 401(k), the deadline for notifying employees is November 1.

Rules stipulate that an employer cannot offer both a SIMPLE IRA and a 401(k) in the same calendar year.

When planning the conversion, employees under 59½ who pull their money out of a SIMPLE plan within the first two years of participation face a 25% penalty fee of their investment balances for doing so.

Employers, then, will want to ensure that they don’t unintentionally subject their employees to this penalty.

Safe Harbor plan for 2018

Employees must be provided with a notice that the plan will offer a safe harbor provision no later than December 1 of each calendar year.

This notification is required for existing plans that already offer safe harbor provisions, and for existing plans that wish to convert to a safe harbor plan in 2018.


Clients who offer small business 401(k) plans may not be aware of all required year-end notices, or of the benefits of a safe harbor plan.

You can help plan sponsors are on top of the requirements and important dates, while establishing yourself as a trusted expert on the subject.

Who’s the Fiduciary?

While the DOL’s fiduciary rules for financial advisors are new, fiduciary standards among 401(k) plan sponsors are not.

Even before the new DOL rules, plan sponsors were targets of lawsuits regarding the 401(k) plans offered to their employees. To avoid such ugly situations, it’s more important than ever for retirement plan sponsor to understand the responsibilities involved in being a fiduciary.

What is a fiduciary?

According to the Department of Labor, someone is a fiduciary if they perform certain functions with regard to the 401(k) plan. These include discretion over a plan’s administration as well as the selection of the plan’s assets. The focus is on the functions performed with regard to the plan.

Plan fiduciaries must:

  • Act solely in the best interest of all plan participants
  • Execute their duties prudently
  • Follow the specifications of the plan’s documents
  • Diversify the plan’s investments
  • Pay only reasonable plan expenses

Delegating fiduciary responsibilities

Plan sponsors can hire outside service providers to share in their fiduciary responsibility, however, they cannot abdicate this responsibility.

Here are a few types of fiduciary roles these service providers can assume.

A 3(38) fiduciary has the full discretion to make all plan decisions, including the those regarding the investments offered.

In this capacity, advisors are the decision maker for the plan’s investments; they are not merely offering suggestions. The plan sponsor’s fiduciary obligations are more limited here than for other arrangements, but it does have the responsibility to select the investment manager and to ensure that the chosen manager is properly executing the plan’s fiduciary duties.

A 3(21) fiduciary typically recommends investments to the plan sponsors, monitors those investments, and makes recommendations when investments need to be replaced. The final decision, however, lies with the plan sponsor. 3(21) advisors provide counsel and guidance to the plan sponsor, but they do not exercise discretion over the plan investments as a 3(38) does.

A 3(16) fiduciary must ensure that the plan is created and managed according to the ERISA rules. This is typically a role filled by a third-party administrator, either in an unbundled setting or as part of a bundled plan. If there is no outside administrator, then this role must be filled by the plan sponsor.

Using outside service providers

Typical service providers include an investment advisor and a third-party administrator.

VestWell can help you offer a top-notch plan even to your smallest plan sponsor clients. We can act as a 3(38) fiduciary via our arrangement with Palladiem. We can serve as a 3(21) advisor in partnership with you via our relationship with Morningstar. We can also support you as the 3(21) advisor with our cutting-edge administrative capabilities.

Additionally, we can help you offer your clients plan design options including new comparability plans, 403(b) plans and even a cash-balance pension option.

It makes sense to partner with experts in this area to enable sponsors to meet their fiduciary obligations. You can help plan sponsors offer a plan that meets their goals of attracting and retaining employees while helping their employees meet their retirement goals. Hiring the right partners allows the sponsor to focus on what they do best: growing their business while mitigating their fiduciary liability. And it makes you look really good as their advisor!

It’s National 401(k) Day!

Happy National 401(k) Day! How will you be celebrating it?

What’s that — You’re not celebrating it? That’s understandable. After all, every day is a holiday now — In addition to Halloween and Mother’s Day, there’s National Ice Cream Day (Ben and Jerry’s gives out free cones!), national Pokemon day, and Hug a Farmer Day. You can even register your own holiday. But National 401(k) day is a day you should actually pay attention to — it’s the day you should do your Annual 401(k) Checkup.

Looking into your retirement savings sounds about as much fun as going to the dentist (which, crazy enough, experts say you’re supposed to do twice a year). Fortunately, this isn’t as painful as you think, and getting your 401(k) set up right can make a big difference in terms of having a brighter future. With a quick checkup, you could make changes that could forever improve your future.

This article is written from the perspective that your employer is offering you a plan. Fortunately, about 80% of Americans are offered some sort of plan by their company, though many small businesses don’t have one available.

Increase Your Contributions
Are you already contributing to your 401(k)? If so, that’s a great start. Only about 44% of Americans are contributing. The first thing you should check is whether you’re maxing out your employer matching. Many employers offer additional funds to employees who contribute to their account. If you’re not maxing it out, you’re leaving money on the table.

Even if you are maxing out your company match, you should probably contribute more. Try bumping up the amount of money you contribute every month — The maximum for people under 50 years old is $18,000 a year. Now, that may sound like a big chunk of your paycheck, but remember it’s pre-tax dollars, so it’s the equivalent of only about $12,000 in take home pay. So regardless of how much you decide to invest, if you took it as salary, you’d only get about two-thirds of it, and the rest would go to taxes. So try saving more and see how it feels — you can always dial it back down later. Your future self will thank you.

Optimize Your Investments
Saving money for retirement isn’t enough — you also have to make sure it’s invested properly for your needs. A few tips: Think about how comfortable you are with risk. Long-term investments are all about remaining comfortable while weathering the storm of volatile markets, and though it can feel counterintuitive, it’s oftentimes best to just stick with your investments. Still, if you’re particularly risk averse, there are ways to invest your money which are less tumultuous.
Think about your future needs. When do you plan to retire? And is your 401(k) your sole source of retirement funds, or do you have a partner who will also be contributing? Thinking ahead can make a world of difference.

Roll Over Your Old Accounts
Have you switched jobs over your career? Most of us have, particularly younger Americans, who tend to jump from company to company with high frequency. When you switch jobs, it’s easy to forget about money laying around in old 401(k) accounts. A good option may be to “roll over” those accounts into your current 401(k) provider for a number of reasons. First of all, consolidating accounts is an opportunity to save on fees. Many older retirement accounts charge surprisingly high fees. Even a 2% fee can cost you a fortune by the time you retire.

Consolidating accounts makes it easier to see all your money in one place and keep track of it. It can be easy to lose track of old accounts, particularly when your previous employers may not have your new address after you move.

At Vestwell, we believe that everyone deserves the right to receive unbiased advice and quality investment services at an affordable price. We’re proud to be at the forefront of a wave of 401(k) reform. You can learn more about our offering on our website at

#XYPN17 FinTech Competition Award

By Aaron Schumm

I am pleased and humbled to share with you the great news that Vestwell has been selected as the winner of the XY Planning Network’s annual FinTech Competition.  This honor is especially meaningful because we were up against such impressive competition.

The other contenders included CSLA Tech, which has an awesome offering that helps advisors reduce the long-term consequences of student loans, as well as DataPoints, Loan Buddy, RobustWealth, ROL Advisors and Tolerisk, which are also designing amazing technology for the financial planning services community. Together, all of us are working to meet the needs of the next generation of advisors and their clients.

More than anything, this award speaks to the promise of FinTech and the need for continuous innovation. We are thankful that XY Planning selected Vestwell, as it affirms our mission to provide the next generation of solutions that advisors need and clients demand.

We are committed to keep pushing the envelope on solutions that enable every financial advisor to be able to offer their clients a low-cost, fiduciary and automated retirement platform. With these tools, advisors can focus on what they do best – building their business by focusing on establishing and nurturing exceptional customer service and relationships.

Thank you for partnering with us.  We’re looking forward to a bright future for all of us.

Turbocharge 401(k) Participation: Two Smart Strategies for Advisors to Turbocharge Retirement Plans

Two Resources, Two Effective Tactics, Two Essential Steps

By Vestwell Staff

Meet Allison. At 24, she is a second year auditor in the Boston office of a regional consulting firm. When Allison joined the firm, she sat in a room with 40 fellow recruits to listen to a mandatory presentation about the firm’s benefit package. Squeezed between inventory training and the happy hour, that session was a blur of legalese. How was she supposed to pick the right funds if they all looked the same? On her way out the door, Allison tossed the thick 401(k) paperwork package into her desk drawer. That’s where it still sits, two years later.

Robert, the IT support team leader with an office a few doors down from Allison’s desk, has his own retirement worries. Robert is a baby boomer, and fears of being unable to retire are looming large on his radar. He is a well-respected professional with a long, successful career, yet his contributions to the company’s 401(k) plan have always been just the bare minimum. While Robert worries about his lifestyle in retirement, without a clear understanding of his investment options or tools to make intelligent decisions, he struggles to find the motivation to invest more.

Allison and Robert are not alone. According to the Bureau of Labor Statistics, 55% of the American workforce has access to a 401(k) plan, yet only 38% of them choose to participate. And it is not only Millennials that are not adding to their savings. Half of baby boomers, many of whom are already past their peak earning years, have retirement savings of less than $100,000.

We believe that a major source of this problem is the way that retirement plan options are presented to employees.

Many employees just like Allison and Robert are discouraged from enrolling in their company’s 401(k) plan or using it to its full advantage. Common obstacles include the cumbersome onboarding processes, confusing investment fund options, cryptic language and intimidating systems.

It does not have to be this way.

At Vestwell, we envision a future where companies can rely on retirement planning advisors to offer a new generation of plans.

Here is what the future looks like.

Retirement Plans Must Offer Customized Solutions

The problem with traditional 401(k) plans is that employees are limited by poor choices when it comes to fund options. Many 401(k) offerings have excessive costs, poor performing funds and not enough diversification opportunities to allow investors to properly manage risk. Put bluntly, these “off the shelf” product offerings force employees into portfolios that are just not good enough.

Then there is the lack of independence. Too many 401(k) plans still lock employees into proprietary funds. This practice dates back to the early 1990’s when many of the 401(k) platforms were offered through large mutual fund companies. At the time, investment options were limited to the affiliate’s funds in part because the record keeping technology did not allow a broader spectrum of investment products. Technology has since advanced, but many providers remain stuck in the past.

The solution is clear. Plan sponsors need a modern platform that will allow them to offer a wide range of independent investment options. Otherwise, underperforming and poorly managed funds will continue to limit the potential of plan participants to save enough for retirement.

Streamlined Onboarding and Plan Maintenance Are Key

Pensions were once the gold standard of retirement planning. A guarantee of retirement income was provided in exchange for years of service. Today’s 401(k) participation is anything but automatic. Employees must complete numerous paper forms and read through hundreds of pages of boilerplate disclosures. The convoluted enrollment process, combined with complex terminology, means that many employees fail to opt into their company’s 401(k) plan participation out of sheer confusion.

But it is not just employees who are exasperated and confused by the status quo.

The first 401(k) plans were launched back in 1982, yet the volume of paperwork that plan sponsors have to deal with has only increased. They also have to manually track enrollment status and participant changes and there is a stubborn lack of visibility into the fee structure of funds, which makes it difficult to compare costs across providers.

The maintenance of a 401(k) plan has become a full-time job for sponsors and the results (measured by plan participation and fund returns) leave much to be desired.

What would it take to turn 401(k) plans into the valuable engine for retirement savings that they were intended to be? We believe that the answer lies in maximizing the use of technology. If vendors and partners could automate the time-consuming and error-prone processes of enrollment, account maintenance and reporting, plan management would become much easier. Adapting the design of the plan to fit the changing needs of the plan sponsor should take a few clicks, not dozens of forms and weeks of waiting.

The benefits of automation should also extend to plan participants. Vestwell’s research shows that companies with automatic 401(k) enrollment can double employee participation rates. Other surveys have shown that employees with automated enrollment begin saving for retirement earlier. They also report that saving for retirement is easier. A strong 401(k) savings plan can go a long way towards retaining valued employees, recruiting new promising talent and creating better retirement outcomes.

Tips for advisors to turbocharge retirement plans

The current state of retirement savings enrollment is costly, cumbersome and confusing. If your company’s retirement plan participation statistics are disappointingly low, maybe it is time for a new approach. The 401(k) may not be the magical cure, but when used correctly it can be a powerful tool for creating peace of mind in your employee’s retirement.

Contact us at for more information about turning your 401(k) offering into a benefit that is easy to administer and manage.

Day of Reckoning with the DOL

By Aaron Schumm, Vestwell’s CEO and Founder

It.  Is.  Here.  Department of Labor Secretary Alexander Acosta has made a wave in the political landscape by not further delaying the applicability date of the DOL Fiduciary Rule.  Many suspected the can would be kicked down the road, with another delay.  Without taking a political stance, this is a prime example of a highly publicized regulation not being “pared back” by the new administration by way of an executive order.

Forward-thinking shops have already moved to spiritually fulfil their fiduciary obligations – (Link).  But, as we all know, there are procrastinators.  The “wait & see” camp have been left scrambling for solutions.  The anecdote by John Castelly of Personal Capital perfectly captured the state of procrastinators, “This turnaround with a June 9 deadline is just like when we were back in school, thinking we would have a substitute teacher, so we didn’t do our homework, but the real teacher showed up instead and we are now not prepared.”

So, what does it mean for you?  Still, there remains a void that will be filled by the fiduciary rule becoming regulation on June 9.  In the simplest terms, the rule is about transparency of fees, suitability of financial products, and alignment of interests between advisor and consumer.  As it pertains to the 401(k) industry, there are a few key areas we will highlight.

Fee transparency. There can be no “hidden” fees, such as 12b-1’s, sub-transfer agent fees, etc.  Of interest to you, whether a company or an employee, might be the 408(b)2 and 404(a)5 fee schedules to understand who is being paid and how much.

Reasonable Fees. Expanding on point 1, the advisor and plan sponsor’s fiduciary responsibilities now include selecting providers and investments with a reasonable fee.  What’s a reasonable fee?  While that is debatable depending upon a number of factors, a strong argument can be made that with advent of low-cost investment products like index ETF’s and efficient technology platforms to help operationally scale, the total fees (including advisory, admin and investments)  can be totaled at well below 2%, and may be closer to 1% in practice (depending on the investments and service).

Fiduciary roles – There are 4 main areas in defined contribution plans:

    1. Named Fiduciary – This is typically borne by the plan sponsor but can also be aided by the platform provider.
    2. Named Investment Manager – If you’re picking the fund lineup for the employees, you’re picking up that responsibility.  But, investment managers, MF/ETF strategists, DCIO’s, financial advisors, and platform providers can step in to take on this role for you.  This is usually done under the SEC 3(38) and/or 3(21) construct.
    3. Named Administrator – This role is responsible for the final administrator processes on behalf of the company & employees.  Typically, the plan administrator named in the agreement is the plan sponsor.  However, it can be outsourced to a third-party administrator (TPA) and/or ERISA 3(16) provider.
    4. Named Trustee – This is the party acting as the trustee on behalf of the plan. Again, this is typically carried by the plan sponsor, but can be outsourced to a trust company or other third parties.

As the industry thankfully moves towards simplistic, fee-based, low-cost, and transparent environment, understanding the moving parts of retirement plans will become far less confusing for those less adept to 401k and 403b plans.

In every change, there is opportunity; the DOL rule may change the industry, in our eyes for the better.

If you have any questions around how the DOL rule impacts you as an advisor, company or employee, feel free to contact us here at Vestwell.  We are happy to help.