Send Your Retirement Plan Off to the Races with 5 Tactics That Drive Participation

Plan Sponsors... Start Your Engines!

Blog cover image of a blurry racecar crossing the Indy 500 finish line

It’s May in Indianapolis, which can only mean one thing­— The Indy 500! While our fellow Hoosiers gear up for the Greatest Spectacle in Racing, CSi is taking the need for speed off the track and into employer retirement plans.


As a plan sponsor, you know the potential advantages of offering a retirement plan for you, including: employee recruitment, increased retention, reduced worker stress, higher productivity and tax benefits. Higher participation and contribution rates can also reduce the chance the plan will fail discrimination testing and be subject to financial consequences if needed corrections aren’t made on time.


Despite the advantages, employees fail to enroll in their retirement plan for a variety of reasons. They may be intimidated if it’s their first time around or they might not fully understand and appreciate the benefits (or the downside of not participating). Some could be concerned about “locking up” their money — and others might worry so much about making the “wrong” investment decision that they procrastinate making any decision at all.


The key to unlocking all the retirement plan benefits for both you and your employees is not simply having a plan, but making sure that enough workers actually use it.


So, plan sponsors, start your engines! Here are 5 things you can do that strive to grow your participant ranks and send your retirement plan off to the races:


A recent Vanguard survey of 8,900 small business retirement plans found a dramatic effect of automatic enrollment on employee participation rates: 83% with automatic enrollment versus 58% without. And if you need more convincing, Vanguard’s How America Saves 2019 Report found that contribution rates were also higher in automatic-enrollment plans versus voluntary plans: 7.1% to 6.7%.


For employees who want to enjoy tax-free income in retirement, providing a Roth option may motivate enrollment. And with no income cap, this move may also be appreciated by highly-compensated employees who earn too much to qualify for a Roth IRA. Additionally, you may tempt younger workers with a longer timeline to retirement who want to take advantage of the lower tax rate they’re paying now as opposed to what they believe they might face later on.


Offer retirement plan information to participants across a variety of modalities. Some may prefer in-person meetings, while others would rather watch a YouTube-style video at their leisure. And still others might prefer scribbling notes in the margins of a pamphlet. Provide education about retirement plan benefits in a way that’s accessible for everyone, no matter their degree of financial sophistication. Answer questions in short- and long-form, at basic and more advanced levels — and in as many media formats as possible.


CSi provides education to participants in a multitude of ways. From in-person presentations, one-on-one meetings, webinars and even YouTube videos, we’re committed to accessible financial education for all. Speak to your CSi advisor about what services our firm can extend to your retirement plan participants.


It should be easy and straightforward for participants to sign up or make changes to their retirement plan elections or contributions. Changes should only take a few clicks, whether from a laptop, mobile phone or tablet. Optimize a seamless web experience for each platform.


Shorter waiting periods allow new employees to start a saving habit straight out of the gate. It can also be an attractive feature when recruiting seasoned candidates who don’t want to interrupt their retirement savings. So, consider shortening — or even eliminating — waiting periods altogether. Want to take the notion of instant gratification one step further? Consider allowing immediate vesting, which can help make your organization more competitive to draw top talent and further encourage participation in the plan.


If increasing participation is your goal destination, these five tactics have the potential to accelerate your plan closer to the finish line. Like an IndyCar driver relies on to their pit crew, CSi is here to offer support and guidance to plan sponsors as they push the pedal to the metal on the journey towards a successful retirement.

 

This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.


Contributions to a traditional 401(k) may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.


A Roth 401(k) offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.


Sources

https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvComHASsmallBusinessInsights

https://pressroom.vanguard.com/nonindexed/Research-How-America-Saves-2019-Report.pdf

https://scholar.harvard.edu/files/laibson/files/plan_design_and_401k_savings_outcomes.pdf

https://hbr.org/2020/10/employers-need-to-reinvent-retirement-savings-match

https://www.psca.org/PR_2020_63rdReport

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