Send Your Retirement Plan Off to the Races with 5 Tactics That Drive Participation
Plan Sponsors... Start Your Engines!
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 i