You’ve planned the perfect party; the invitations have been sent out with a cute poem announcing the guest of honor’s retirement and Pinterest party ideas have exploded in your living room. However, when the big day arrives, only 30% of the people you invited actually show up to celebrate. You have to wonder “Where did I go wrong?” Was the poem too confusing? Did the invitees not understand what or where the event was? Were the invitations too late? Was the theme not cute enough?
There is a lesson to be learned in terms of planning your company’s 401(k) and it is not too different from planning a party. A great deal of effort must be expended in the development, maintenance and advertising a 401(k) plan. Just as with party preparation, if few employees take advantage of the plan, the disappointment that you and the committee experience will feel very much the same. You must ponder, why are employees not using this great benefit that is offered to them? Is the plan designed too complicated? Did we not communicate the benefits? Do our employees just not like the idea of saving?
Preparation: Plan Design
Plan design is not one size fits all. If providers with whom you are working have offered you an off-the-shelf plan that was predesigned for you, it deserves a close examination. It may not necessarily be the best fit for the needs of your employees. If low participation plagues the plan, it may be time for your company to explore the appropriateness of automatic enrollment. This can either be offered to newly hired employees only or your company may decide to enroll all eligible employees who are not currently participating in the plan. Afraid your people will not like being “forced” into the plan? There are provisions within automatic enrollment that allow employees who do not want to participate to withdrawal their money, penalty free, within a defined period of time. Maybe refunds to your highly compensated employees due to failed compliance testing is an annual problem; if so Safe Harbor provisions could be a solution. Finally, even reviewing seemingly basic provisions like eligibility age, hours worked, and entry dates can have a positive impact on overall plan participation.
Just as you would not spend weeks preparing the perfect menu for the perfect party and then hope people will show up without being invited, you should not assume that people are going to participate in your 401(k) plan just because you make the offer. Simply handing out an enrollment form during your new hire packet is not going to be enough to truly engage your people and make them interested in using the plan. A targeted education program that incorporates informing your people on the facts and figures of how to enter the plan is a must. During this information sharing session, you can also address common objections such as “I can’t afford to participate” or “I’ll never retire”. In order for your 401(k) plan to be successful, it is essential to offer your employees the ability to meet one-on-one with your plan’s financial professional in order to address individual concerns that they may not voice in a group setting.
Thank You Note: Consistent Monitoring
For the guests that have attended a party or, in this case, employees who have chosen to participate in the 401(k) plan, there should be follow-up. It is important for the committee to consistently monitor the plan provisions and the plan investments. Too often plan sponsors fall into the “it’s the way we’ve always done it” trap that can lead to missteps in the administration of the plan. As your plan assets grow and as participants are added, there is a good chance that the needs of the plan will change and the committee must adapt procedures to reflect those changes. The same can be said for the plan investments. As the plan assets grow, there may be opportunities for the plan to utilize investment options that they did not have access to when the plan was smaller. Many times the investments that become available are less expensive than the previous options. A recent legal case, Tibble v. Edison, clarified that plan sponsors have an ongoing duty to monitor plan investments and that the six year statute of limitations does not apply to investment monitoring .
Whenever you find a cause worthy enough to put your time into, whether its planning a retirement party or preparing the plan that your people will use to get to retirement, it is important to take the steps necessary to make it a success. Please let me know if you would like assistance with the latter.
Jamie Kertis, AIF®, QKA
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162