Bold and Scold: The New Breed of 401(k) Advisor

Are your clients doing enough to be successful?

by Charlie Epstein, CLU, ChFC, AIF

Mr. Epstein, CLU, ChFC, AIF® is the founder of The 401k Coach® Program, offering expert training for financial professionals to develop the skills, systems and processes necessary to excel in the 401(k) industry. He is the author of the books, Paychecks for Life® and Save America, Save! both focused on helping participants turn their 401(k) into secure retirement income.

As many already know, the DOL and Treasury have launched a new initiative focused upon taking our voluntary retirement system, which provides 401(k) participants with a lump sum account balance only, and turning that lump sum into an equivalent, and meaningful monthly benefit.

We call this a Paycheck for Life, and it is bot a major challenge and fantastic opportunity to establish joint communication with plan sponsors and plan participants. In effect, to convey that our 401(k) system is best suited to creating a lifetime income benefit for every working American. As an historical reference, it is important to note that the United States is the only developed country that does not have a mandatory retirement system.

Many ask me, “But Charlie what about Social Security? That’s a mandatory system!” Mandatory, yes, but it’s certainly not a retirement system. Let’s be very clear; it was and still is a “safety net” for the less fortunate workers and was never meant to provide “adequate retirement benefits” to anyone. So that leaves us, gratefully so, with our voluntary 401(k) system, system, by the way, that many university-based intellectaulss and socialistic minded government officials feel they are better suited to manage and control…but I digress.

The DOL and the Treasury’s next big initiative is working with the nation’s record keepers and providers to figure out the best methodology for converting those 401(k) lump sums into a realistic monthly income at. How to calculate this number, and at what retirement date, I’ll leave to greater minds.

However, the idea of “DBing” the DC Plan with an equivalent monthly benefit factor and educating participants on why it is important for them to begin viewing their 401(k) accounts in terms of a “Paycheck for Life,” is something that every advisor should be excited about.

So, where to begin?

Here is my short list:

  • Act as the Success Consultant to retirement plans.
  • Create a well-crafted Success Formula for Plan Sponsors and a separate Success Formula for Plan Participants.
  • Be BOLD: By this I mean, you must begin to focus on whether the retirement plans you manage are actually successful in creating a minimum adequate rate of income for all plan participants.

Success Metrics

You will need to establish “success metrics” and be prepared to benchmark participant success. This starts with establishing a baseline monthly income replacement ratio for all participants at retirement and measuring their success on an annual basis.

There are plenty of great tools in the marketplace to assist you in doing so, a couple examples are: Trust Builders, Inc. ( and Fiduciary Benchmarks (

the idea of “DBing” the DC Plan with an equivalent monthly benefit factor and educating participants on why it is important for them to begin viewing their 401(k) accounts in terms of a “Paycheck for Life,” is something that every advisor should be excited about

But that’s not the BOLD part. The BOLD part requires that you actually TELL plan sponsors what they NEED AND MUST DO to facilitate participant success.

Tell them, they need to add ALL the automatic features – auto enrollment, auto increase, auto QDIA and The Stretch Match to even begin to have a shot at creating successful retirement outcomes for ALL plan participants. Otherwise, as I BOLDLY tell my plan sponsors, “What’s the point of spending all this time and money on your retirement plan, if you are going to leave it up to ‘human nature,’ which tells us, that left to their own devices, the average participant will do the ‘below-average’ thing and not save enough money in ever increasing increments over their working years to create “Paychecks for Life.”

Tell them that automatic features are proven 70 percent effective in combating “human nature,” and creating better outcomes! • Tell them those employee education meetings MUST BE MANDATORY and every participant MUST meet one-on-one at least once a year with your advisory team.

Tell them, and this is really BOLD – that their employee match and profit sharing contribution is not enough to incentivize participants to create a successful outcome. They need to consider a “stretch match” to encourage a larger percentage of their employees to save 10% of their pay. Now that’s BOLD!

Below is an example of the Stretch Match Design in action. In the current plan design, the employer is matching 50% up to 6% of an employees pay. This is a very common non-safe harbor matching formula used by a majority of plan sponsors. The problem however, is many employees only save 6% of their pay and say, What’s the point of saving anymore if my employer is not going to match above 6%?”


The Stretch Match example incentivizes employees to save a larger percentage of their pay, in this case 10%, in order to receive the full company match. Some employers may tell you they can’t afford, or are not willing to spend any more money than they currently are on the matching contribution.

This “stretch match formula” of 50% on the first 2% and 25% on the next 8% eliminates both objections, since the company out of cost expense is identical to the 50% up to 6% matching formula. In the case of the “stretch match,” the employer doesn’t have to spend anymore to incentivize their employees to save more- 10%!

Go ahead…scold them

Finally the SCOLD in my title is simply that. You need to scold both plan sponsors and plan participants for not doing enough to be successful.

It’s a little like when you mother used to scold you for not taking your vitamins, wearing your goulashes in the rain, forgetting to take your winter coat to school in the middle of the winter, looking both ways before you cross the street, and doing your homework!

You didn’t much like mom when she told you to do all those things, but you surely appreciated the outcome and benefitted from it in the long run. Lastly, no one ever fired mom for telling you what she already knew and what you should be doing. Carry that thought with you the next time you are sitting across from a plan sponsor client (or prospect for that matter) and wondering whether you should tell them to take the strong medicine. Be BOLD! And everyone will be healthier for it.