10 strategies on retirement plan
About 75 percent of U.S. employees who are currently enrolled in a 401(k) plan think that 401(k) plans are the most important source of a person's retirement income. In a study with Pentegra and Harris
With the 401(k) plan becoming the sole retirement strategy for many employees
We will explore 10 vital strategies around improving plan participation which can help create successful retirement outcomes for employee and plan sponsors of Retirement Plans.
1. Make it easy to enroll.
Strong participation rates typically start by making it easy for participants to take advantage of the plan from day one. That means taking a look at the eligibility requirements. Typically, immediate eligibility allows participants to get involved right away. This does not mean that a matching contribution has to be provided right away but at least it gives the plan participant an early entry into saving into the plan. As a bonus, this also helps new hires roll over their contributions into the plan making it an easy way for them to organize and consolidate their assets and keeps them from spending or cashing out their existing retirement plans from previous employers.
Another consideration for this is dual eligibility requirements. Some employers employ a strategy where employees are allowed to enter the plan again at a different eligibility period to benefit from an employer match. For example, immediate entry but also possibly a three, six, nine or twelve months wait until plan employer contributions become effective.
2. Make sure that your vesting schedule is as short as possible.
Typical plans utilize a five and six-year vesting period but an immediate or shorter-term vesting schedule like a two to three-year vesting schedules will make the benefit of an employer match a nice incentive and also help retain your existing employees.
3. Utilize online enrollment.
Online enrollment can be an effective tool, especially for the plan sponsor whereby it allows employees to register and enroll quickly through the use of record-keeping technology. Many
According to Pentegra and Harris Poll’s recent study, 47 percent of employers have a 401(k) plan auto-enrollment feature that coordinates with online enrollment. The bottom line is it's critical to help participants get started and start helping themselves.
4. Implement automatic enrollment.
In conjunction with online enrollment, implementing an automatic enrollment feature is also a useful tool to apply. Automatic enrollment basically provides an automatic entry into the plan for eligible participants. The accountability
The goal is to get at least 90 percent of workers into a retirement plan through
5. Offer a 6 percent deferral rate rather than a 3 percent deferral rate.
6. Add an
7. Get creative with your matching contribution.
Some examples of utilizing employer match include increasing the amount that a participant would have to defer in order to get the max match. This strategy can also provide and yield positive results. For example, rather than matching 100 percent up to the first 3 percent, employers could impose a half a percent up to 6 percent which would yield the same match percentage at the end of the day. Most participants will typically default towards the maximum percentage of deferral percentage in order to get the maximum match. Why not include or require a higher deferral percentage for participants in exchange for receiving their maximum contribution from the employer?
Keep in mind this is also a wonderful way to keep your employer match consistent. You can always adjust it if conditions change due to changing economic or business conditions.
8. Adopt a safe harbor matching formula.
Safe harbor formulas provide
The benefit to the employee is that it is a very valuable matching contribution. It is 100 percent vested from day one. For plan sponsors, the benefit is the ability to be exempt from discrimination testing which allows HCE's (highly compensated employees) to maximize their contributions and ensure that plan provides all employees with a base of retirement savings.
9. Add a Roth feature and potentially an in-plan Roth conversion feature.
A Roth 401(k) 403(b) option combines the features of a traditional retirement account with a Roth IRA, providing employees with a source of
Contributions are made, the contributions grow
Another benefit of the tax-free withdrawals is that it can help highly paid workers better manage their tax situation at retirement. For most people, the main reason to contribute to Roth is to let the money grow
10. Limit plan leakage and the ability to take withdrawals or loans.
Early distributions from a retirement plan for uses other than retirement income is more commonly known as plan leakage. Most plans allow participants to access their account using in-service withdraws, hardships and loan provisions. Approximately 90 percent of these plans allow these types of provisions. Using these withdraw features can some sometimes limit the efficiency of growing your retirement savings over time.
Potentially limiting these features will help individuals better save for retirement and help them utilize other income sources or saving sources to pay for expenses that they would otherwise use through a
By reviewing these strategies with your record keeper, your third-party administrator or your advisor, you can begin to explore the different strategies and assess them as to whether or not they would be effective for your current plan. We recommend reviewing your plan health reports on an annual basis. These are reports that your third-party administrator, your
As a plan sponsor, you can begin utilizing a few of these strategies today that provide beneficial features that will help plan participants prepare for a successful retirement.
This information was developed as a general guide to educate plan
- *The Impact of Automatic Enrollment in 401(k) Plans on Future Retirement Accumulations: A Simulation Study Based on Plan Design Modifications of Large Plan Sponsors
- How America Saves 2017 – Vanguard