I thought I would highlight a few trends for you in 401k Plan Administration as we head into 2018.
A continued trend and concern for employers is employees who are stressed about their personal finances. This often leads to lower productivity; and for employees who can’t afford to retire when of age, employers may face a talent cramp that creates high healthcare costs. A lack of education may not be the reason that today’s older workers can’t retire, however, financial education can go a long way in helping your workforce make the most of the benefits you’re offering.
Employers are increasingly adopting Plan design options that facilitate retirement savings.
Auto-enrollment policies are a rising trend. Traditionally, employees had to opt in to participate in the plan. Under this plan feature, employees now must opt-out if they don’t want to participate. That take care of the procrastinators! Employers offering this plan feature has risen from 50% to nearly 70% in the past several years. Plans with auto-enrollment have 80-85% participant rates, while traditional opt-in plans tend closer to 50%-60%, depending upon age.
Is a way to get employees to save more than the minimum required to achieve their match. Contributions automatically increase each year until a cap is reached. Companies are offering this as an opt-out option.
In addition to helping plan participants save for their future, these plan features above can also help with year-end compliance testing for plans which may otherwise become top-heavy.
Target Date Funds
A Vanguard study showed the use of TDFs has risen 75% since 2012. The use of these “age-based” funds has helped participants to achieve prudent diversification, which they likely would not have done on their own.
A good adviser can help employees understand how to make realistic and practical use of the benefit, and help employers to minimize their fiduciary liability. Several studies show 60% of participants can’t cover a $500 emergency expense. An emerging trend is the so-called “financial wellness” program. These type programs further educate employees about key financial education topics such as retirement readiness (how much will you need), debt management, and setting goal-based plans.
Jerry Matecun helps business owners to understand and manage retirement plan risks and responsibilities, as well as help participants understand saving, investment, and distribution strategies vital to retirement readiness. For a no cost, confidential conversation regarding your retirement plan call or email Jerry at 949-273-4200, or email@example.com.