Every year we set goals for ourselves, the company, but when did we last set goals for our 401k plan? Participation is one measure in evaluating the success of your plan. So, as a plan sponsor, what are some strategies you can implement?
One is to consider automatic enrollment. With this plan design, the participant is automatically enrolled at a predetermined deferral percentage as outlined in the plan document. Participants can stay enrolled or opt out if they choose. In addition, you may also want to consider auto escalation as well. In this situation, the percentage deferred is adjusted, usually annually, by a certain percentage as outlined in the plan document.
Another consideration is the eligibility provisions in the plan. More and more plans are shortening the service requirements for the employee deferrals to allow participants to gain access to the plan sooner. If the plan offers a match or employer contribution, the Plan can allow for different eligibility periods for employee deferrals and company contributions.
You may be saying to yourself, I have good participation in the plan, but a question to ask is what is the average deferral rate and can it be increased. One way to increase the deferral rate is through an education campaign. Consider annual meetings with the employees and the plan providers. Many plan providers offer a retirement planning tool to participants. However, many participants aren’t aware of this. Be sure to mention this or possibly provide a demo to employees at your annual education meetings. Also, provide for catchup contributions for those 50 or older and give employees the ability to contribute the maximum allowable under the law for employee deferrals.
If the plan provides for a match, ensure that the employees understand the amount of the match and that they are maximizing the amount they receive. Many times the employees are not aware that a match is present. If the plan matches up to 3%, it is important that the employees understand how the calculation is done and that they may want to increase their deferral to maximize the amount they receive from the employer.
Allow plan rollovers from other plans. New employees may wish to rollover their retirement funds to your plan to have all dollars in one place.
Plan fees are still a concern not only for the employer but the employee. Review the fund offerings regularly to ensure that costs are in line with the market and communicate to the employees that you are watching costs to maximize their retirement dollars.
These are just a few considerations for this year's 401k goals. A robust 401k plan is one component needed to retain talent at your company. If you have any questions or would like further information, please contact Michelle Buckley.