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

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.

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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?

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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