Key recommendations for a better, inclusive plan design
September 14, 2022
When designing defined contribution (DC) retirement plans, many factors must be considered. Not only do plan designers have to ensure compliance with laws and regulations, but they also have to think of the employers (and their budgets) as well as how to best accommodate plan participants in a way that makes it worth everyone’s investment.
A good way to think about this is to see it through a lens of diversity and inclusion. How can this be accomplished?
Implement automatic enrollment
Setting up automatic enrollment can save some potential headaches for employees. This is the most inclusive way to involve all employees, because everyone will be participating unless they expressly choose to opt out later. But participation ought to be encouraged as a way to set up all employees for financial success in the future.
In fact, automatic enrollment could become easier than ever, if the automatic enrollment provision of the new Secure Act holds and passes. This provision would mean employers would be required to enroll eligible workers into a 401(k) plan at 3% of their salary, then increase it by one percent each year until it reaches 10% to 15% (unless the worker elects otherwise).1
Have inclusive eligibility requirements
In addition to what all laws and regulations make clear, a plan may be further tailored so that it can be as inclusive as possible.
Work with employer contacts and understand their structure. Do they have full-time and part-time employees? Are the part-time employees eligible for a retirement plan? If not, would it make sense to offer that option and eligibility to them? Including as many people as possible within eligibility requirements may help encourage participation as well as shine a positive light on the employer.
Including part-time employees in eligibility requirements could also open up opportunities for financial advisors to provide coaching for those individuals who don’t work at full-time jobs. Perhaps these part-time workers assume that they can’t access an employer-sponsored retirement plan, not realizing that may not always be the case.
Create and promote plans that can withstand volatility
We all know that things have been nothing short of a rollercoaster ride the past few years. That’s why it’s important that any retirement plan should be built with diverse assets and measures in place to protect the plan and the participants from total ruin if the markets take a dip for a while.
These are meant to be long-term investments, and they should be developed as a complement to a participant’s retirement goals and financial security. Investment advisors can provide input to employers and employees on what’s best for the long haul rather than what may seem like the best idea just for today.
Encourage optimized contributions
You may encourage employees to contribute high enough amounts to the plan that they’ll get the most out of it in the future without completely sacrificing their current sense of financial well-being.
At the same time, plans should be built in a way that allows for such beneficial contributions and payoffs for workers when it comes time to withdraw for retirement. An employer match to employees’ contributions is a big incentive to encourage maximum plan participation. There are a number of ways to structure a match that meets the needs of both the employee and employer.
Transparency is essential for building trust, and that goes for encouraging retirement plan participation as well. Do they have access to all the materials they need to make informed decisions about participating? Most plan providers deliver a wealth of information and education to plan participants – but many are not aware of or don’t take advantage of those resources.
Continually encourage plan participants to engage with their plan and explore all the resources available to them. Plan education should include not only how the plan works, but also information on plan fees and performance. Quarterly statements go a long way to explaining plan details and now include Lifetime Income Illustrations which will help participants stay on top of their savings.
Retirement solutions for different needs
While these recommendations can help promote solid plans and participation, retirement plans in general are not a one-size-fits-all endeavor. We encourage you to partner with us so we can help you find the right plans and create customizable solutions that fit the long-term goals of plan sponsors and their participants.
1Congress.gov, Text: H.R.2954 — 117th Congress (2021-2022), March 30, 2022