By Mark Olsen, Managing Director at PlanPILOT
Providing an attractive benefits package for your employees is a great way to establish a supportive company culture, retain talented people, and help your employees build financial security for their futures. But plan sponsors take on significant responsibilities when offering retirement plans to employees. These responsibilities include, but are not limited to:
- Determining membership criteria for participants
- Choosing investment options for the plan
- (Optionally) making contributions to participants’ plan
- Adhering to fiduciary management of assets held in the plan
- Distributing retirement income to employees when they become eligible
With these responsibilities, plan sponsors want to do all they can to avoid risks of litigation, which has been increasing in recent years due to claims of charging excessive fees or mismanaging assets. (1) Luckily, there are several actions you can take to improve the outcomes for your plan participants. Happy participants are much less likely to sue you than unhappy participants.
1. Provide Education
According to a survey of 1,000 employees in the U.S. with access to employer-sponsored retirement plans, 60% of plan participants state they want more education from their employer about their retirement plan and their investment options.
For many employees, their employer-sponsored retirement plan may be their first and only exposure to investments. Providing educational programs or workshops to your employees will likely increase plan participation and result in employees who have a better understanding of their options to create a more secure financial future.
2. Include Target-Date Fund Options
Target-date funds (TDFs) are helpful investment options for novice participants because they provide diversified asset allocation that is age-appropriate. Rather than having to diversify assets on their own based on minimal (if any) expertise, plan participants can invest their contributions in a fund that is routinely rebalanced to reflect the distance from their projected retirement date.
3. Require Annual Re-enrollment
Requiring your participants to re-enroll in the plan every year keeps them engaged in their retirement plan. Re-enrollments default participants into an appropriate TDF or allows more active participants an opportunity to choose investments based on their preferences.
As a bonus, mandatory re-enrollment may decrease your risk of liability because participants are expected to review their plan options each time they re-enroll. Because re-enrollment periods force plan participants to pay attention to their retirement plans, they may be more likely to seek professional advice as they think of questions and concerns regarding their plan, which may result in better outcomes for them.
4. Optimize Your Employer Match
Research shows that more employees will participate in the retirement plan if you offer an employer match. (2) Obviously, the greater the match you provide, the more incentivized your employees will be to maximize their contributions.
But there are ways to incentivize your employees to contribute more without contributing more yourself. By implementing a “stretching” strategy rather than a “matching” strategy, you can encourage your employees to save more without contributing more yourself.
For example, if you offer to match 100% of a participant’s contributions up to 3% of their salary, they may only be incentivized to save 3%. But if you offer to match 50% of a participant’s contributions up to 6% of their salary, they will be incentivized to save more while you are still contributing the same dollar amount.
How We Can Help
The truth is, there are many strategies you can use to help improve your plan and thus improve retirement outcomes for your employees. Partnering with experts like the team at PlanPILOT can help you learn about more strategies and decide which strategies are the best fit for your business.
When you work with us, we can help you choose investment options, design tailored education programs for your workforce, review plan fees, and much more. To see how we can help, give us a call at (312) 973-4913 or email mark.olsen@PlanPILOT.com.
About Mark
Mark Olsen is the Managing Director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k) and 403(b) plan sponsors. Drawing on over two decades of experience, Mark provides institutional retirement plan consulting to 401(k), 403(b), and defined benefit plans. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences including Pensions & Investments, Stable Value Investment Association, and CUPA-HR.
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(2) https://www.im.natixis.com/us/resources/2019-defined-contribution-plan-participant-survey