More and more employees are turning to their company sponsored retirement plan as their primary source for retirement planning needs. Below are some leading edge ideas that retirement plan sponsors will be looking at implementing in 2015 in order to help create positive participant retirement outcomes.
Stretch the employer match – This is a low cost/no cost way for employers to incent participants to increase their deferral percentage. The traditional and most common matching formula has historically been 50% on the first 6% of employee compensation. A new motivating strategy has been to stretch the match formula to 25% on the first 12% of employee compensation. Expect this trend to continue as employers look for low cost ways to improve their employee’s deferral percentages.
Participant Goals – Helping employees measure their progress toward retirement readiness is a key focus for retirement plans of all shapes and sizes moving forward. Plan sponsors are looking for advisors and service providers who can provide the tools and services necessary to achieve personalized participant retirement readiness solutions. With solutions becoming more personalized, expect to also see a continued rise in the use of online and mobile access.
Focus on Financial Wellness – In addition to improving retirement readiness results, employers are focusing on creating and/or broadening their efforts on financial wellness beyond just retirement decisions. Common financial wellness campaigns for 2015 will include, Basics of Financial Markets, Saving for Life Stages, Budgeting, Health Care Planning, and Debt Management.
Don’t Forget about Roth 401(k) – Although it feels like the Roth 401(k) feature has been around for a long time now, only about 54% of retirement plans give their employees the ability to defer after-tax dollars into their 401(k). With the recent ability to convert pre-tax 401(k) accounts into Roth 401(k) accounts, expect more employers to adopt the Roth 401(k) in 2015.
Restate Your Plan Document – Prototype documents for 401(k) plans are currently in a restatement window, therefore, if your plan uses a prototype document it needs to be restated by April 16th, 2016. This is a great time for plan sponsors to examine their plan provisions and make improvements as they see fit. For example, adding automatic enrollment, stretching the match formula, or adding the Roth 401(k) feature.
When evaluating the performance and overall health of a company sponsored retirement plan, consider these trends and how they may help improve your initiatives for 2015 and beyond!
John Friar, AIF
Financial Consultant/ Director of Corporate Retirement Plans
Park Capital Management