Maximizing the Impact of 457 Plans: An Opportunity in 2024
Rob Whited, CFA? CEBS?
457/401(a) Fiduciary Advisor & Investment Consultant supporting Municipalities, Special Districts, JPAs | Instructor & Lecturer on 457 best practices
Managing the 457 deferral plan as the named Plan Administrator, Authorized Plan Representative or anyone who acts as a fiduciary or influences decisions comes with crucial responsibilities. The decisions made today shape the financial security and well-being of employees long after their service ends. Given the weight of this responsibility, it is imperative to recognize the opportunity to make decisions. Not making any changes to a plan for more than five years is a choice and one that can significantly impact retirement outcomes.
The Gravity of Decision-Making
Irreversible Impact: The choices made regarding the retirement plan are not merely administrative decisions; they have long-term consequences that cannot easily be undone. This one chance to make a positive change is a rare opportunity to secure a better future for employees.
Perception vs. Reality: It is vital to understand that not making a change is, in itself, a decision. Whether this inaction is intentional or perceived as such, it holds as much weight as any active choice. By not acting, you may inadvertently miss opportunities to improve retirement benefits for employees.
Employee Trust and Well-being: Employees implicitly trust plan fiduciaries to handle the 457 and 401(a) retirement plans with their best interests at heart. Taking proactive steps to enhance their benefits demonstrates a commitment to their future well-being, reinforcing their trust and satisfaction.
"The best way to predict the future is to create it." — Peter Drucker
The Opportunity for Improvement
401(k) and 403(b) plans are a valuable guide: 401(k) plans and 403(b) plans typically offer three plan features lacking in many 457 plans today:
- open fund architecture
- institutionally priced best-of-class investments
- comprehensive advice services
Independent advice separate from the recordkeeper that is conflict-free and experienced is common with nonprofit hospitals, universities, and corporate retirement programs. 457 plans can gain access to what these organizations currently enjoy. It only takes curiosity and commitment.
Financial Wellness for All: Recordkeepers and advisors have significantly improved financial wellness outreach, tools, and specific data-driven solutions. This will continue at a record pace allowing for greater effectiveness and accountability.
Review and Optimize: This is the perfect time to thoroughly review the current retirement plan, identify areas for improvement, and implement changes that can provide better outcomes for employees. A proactive approach ensures that you are doing everything possible to support the 457 program under your stewardship.
Benchmarking and Best Practices: By examining successful strategies from other public sector retirement plans, best practices that have proven beneficial elsewhere can be adopted. This benchmarking provides insights and inspiration for making meaningful enhancements to the plan. How can this be measured? Look at plan demographics and plan data to identify areas of improvement beyond the deferral rate. Scrutinize managed account offerings, effectiveness, and advice tools with accountability metrics.
Collaborative Decision-Making: Engaging with stakeholders, including employees, financial experts, and other relevant parties, helps in making well-informed decisions. A collaborative approach ensures that diverse perspectives are considered, leading to choices that are in the best interest of all.
Closing thoughts
In summary, there is a singular opportunity for decision-makers to greatly improve employees' retirement outcomes. By acknowledging that inaction is also a decision, the importance of being proactive is underscored. Seizing this chance to optimize the retirement plan ensures the fulfillment of a fiduciary duty to employees and to help secure an improved financial future.
Decisions made today will echo in the lives of colleagues, co-workers, and friends not just employees for years to come. Everyone gets one retirement, just one, and we use the phrase "leave no participant behind" to emphasize that point.
About the author:
My focus along with the resource deep Public Sector Retirement Advisory Team at Creative Planning is to improve 457 and 401(a) plans. We are driven by the impact and by the people who have dedicated careers to helping their communities, special districts, and agencies.
rob.whited@creativeplanning.com 213-314-3624, 415-367-5298