Once an organization reaches a certain size, it's difficult to compete for talent and retain employees without sponsoring a qualified retirement plan. However, the costs of doing so can be intimidating, and plan administration might seem overwhelming. Let's explore four ways to run a more cost-effective plan.
Among the most effective and inexpensive steps any organization can take is adding automatic features to its plan to simplify the experience for both employer and participant. For example, automatic enrollment adds employees to the plan by default, usually after they reach a certain amount of service time. This tends to dramatically boost participation, which is to your advantage from a cost and compliance perspective.
Also consider automatic contribution escalation. This feature gradually increases participants' contribution rates over time, helping them save more without seeing a big hit to their paychecks.
Agreeing to match each participant's salary-deferred contribution can serve as a major enticement in hiring and plan enrollment. But your organization doesn't need to make huge contributions to make a difference. Even a 2% or 3% match can encourage employees to participate in your plan. Plus, it signals that you're willing to invest in your staff's future financial security.
What's more, employers may set up their plans so that participants must contribute more of their own money to receive the full match. For instance, rather than matching 100% of the first 3% an employee contributes, you might match 50% of the first 6%. This approach would cost your organization the same amount but encourage higher savings rates among participants.
"The more, the better" may seem like a good philosophy when offering plan participants various investment options. However, particularly for small to midsize employers, this approach can backfire when employees feel overwhelmed and dissatisfied with the plan.
You may be better off providing a smaller, carefully curated set of investment choices. Target-date funds are an especially popular choice. This will likely help participants feel more confident in their investment decisions and more engaged with the plan.
Another benefit of a right-sized approach is that you'll likely reduce your fiduciary risk as plan sponsor. With fewer funds to deal with, and well-chosen ones at that, you should be able to better monitor performance, fees and suitability for your workforce. In turn, this will make it easier to fulfill your plan administration responsibilities.
Sponsoring a qualified plan alone may not be enough. Many employers find they also need to educate employees about financial wellness, so they know how to manage their retirement funds. Consider approaches such as:
In addition, be sure to recap your plan's positive features during open enrollment and issue regular reminders about the importance of participants actively managing their accounts. It can all add up to stronger plan participation and satisfaction.
There are valid reasons why qualified retirement plans have become such a common employer-sponsored fringe benefit. Employees who feel financially secure are generally more focused and less stressed about the future.
Meanwhile, your organization can enjoy competitive advantages in hiring and retention. It may also benefit from tax deductions for contributions and even potentially qualify for tax credits that help offset administrative costs. Contact us for assistance exploring ways to strengthen your plan's effectiveness without overspending.