By Edward “Ed” V. O’Neal, Vice President and Manager, Retirement Plans

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Business Owners are starting to realize the tremendous impact a few key strategies can have in helping employees get on track for retirement. These strategies initially gained traction with large corporate 401(k) plans, but have slowly started to be adopted by small and mid-sized business 401(k)s. The strategy entails utilizing best practice plan design features to position employees with the goal of positive retirement outcomes.

So what exactly do these best practice plan design features look like? Here are a few examples:

  1. Automatic enrollment of new employees into the 401k
  2. Establishing a default salary deferral rate for new employees (typically between 3 – 6 %)
  3. Establishing an automatic escalation provision to increase employee salary deferrals to 10% (typically rising by 1% per year)
  4. Establishing a default investment selection for new employees in a diversified investment option
  5. Eliminating or restricting plan loans (to limit employee ability to access assets before retirement or separation from service)

These plan design features can effectively allow employees to put saving for retirement on “auto pilot,” while increasing their opportunity for an improved financial future. Despite the potential benefits of incorporating best practice plan design features in 401(k)s, there are still many small and mid-sized businesses that have yet to consider these strategies. Reasons can include:

  1. Inertia – sometimes it’s easier to just continue with the status quo
  2. Concern of upset employees – concern that employees will see automatic enrollment, automatic escalation and default investment provisions as overbearing and not supportive.

Ultimately, it’s about changing lives and helping employees achieve the retirement and financial freedom they deserve.  Business Owners who are sponsoring a 401k plan and not experiencing the participation and savings levels from employees they were hoping for, should consider incorporating some (or all) of these strategies.

Talk to your retirement plan provider to confirm if these plan design features are available, and remember to consult with your legal and/or tax advisors before making any changes.