Retirement plans can be a great benefit for drawing and retaining employees. However, is your retirement plan deemed attractive to current and potential employees? How does it compare to other employers you consider peers? An attractive DC plan does not happen by chance – it requires thoughtful plan design. If you craft a plan prudently and with their retirement in sight, it will be beneficial to both your company and your participants. We have helped many plan sponsors with their plan design and observed the main attributes that make a successful retirement plan program.
An Investment Lineup for Everyone
There are different types of plan investors, and, more importantly, many that aren’t fully up to speed with their understanding of investments. Giving participants too many options or using complicated language can cause paralysis in decision-making. Instead, reduce the amount of investment decisions and work on diversifying the lineup to meet the needs of all participants. It needs to be suitable for all participants at different levels of retirement saving with varying investment knowledge, and be broad enough to meet their diverse retirement goals.
High Contribution Rates and Account Balances
The most successful plans have a high percentage of their employees participating. A point of reference for substantial participation is 85 percent or more. Features that assist in boosting participation rates include automatic enrollment and annual auto re-enrollment.
Similarly, an attractive and successful retirement plan program means giving participants the best chance for a successful retirement. Consider higher default deferral rates, automatic escalation and catch up contributions to encourage participation that keep the participation rate at a healthy level.
Employees Understanding the Plan
The best plans are the ones understood by their participants. They tend to be designed with the employees in mind and supported by the management team. If employees do not understand the plan and benefits well enough, they won’t contribute the necessary funds to be retirement ready. Consider implementing financial wellness education so employees understand basic financial knowledge. Emphasizing financial wellness education will enhance their understanding of the plan investments and other concepts like risk and volatility, and it will empower them to make sound investment decisions based on their risk tolerance and retirement goals. Without simplifying the details, employees will choose to do nothing and forfeit their retirement financial goals.
New Employees Contribute to Plan While Departing Employees Leave Balances
Employees and retirees will be loyal to a plan with excellent features and benefits. Some companies offer a hefty match for contributions, while others provide a set rate they will fund the plan whether their employees contribute or not. Create a plan they will find competitive with what they may find anywhere else, and employees will keep their money there long after they leave the company.
Departing participants may not know the benefits of keeping their balance in your plan, or at a minimum converting to an IRA. It’s important to educate and help them decide how to handle their retirement assets. Features like post-retirement investment options, allowing for partial withdrawals and investment consultations will entice retiring employees to leave their investment growing.
Having the Right QDIA
Evaluating your current QDIA, usually a target date fund family, is crucial because this is the default option for those that are auto-enrolled. There are plenty of QDIA options such as target date funds, customized target date funds, collective trust target date funds, balanced funds, risk-based funds, and managed accounts. Options that consider more specific details such as age, contribution amounts and frequency will better prepare them for retirement.
Get Help From an Advisor
If your plan does not measure up to these standards, it is time to talk to an investment advisor. As an independent Registered Investment Advisor, PlanPILOT is not tied to any investment fund or recordkeeper. We offer clients unbiased advice and assistance to control their retirement plan risks and deliver benefits effectively. Seeking help with these aspects of retirement plan oversight will improve on communication, education, and delivering a more personalized experience for plan participants. Call us today at (312) 973-4911 or email info@planpilot.com.
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