Tip #1—stretch your 401(k) match and shrink the retirement savings gap
If your plan offers a match, it’s likely because you want to encourage people to save for retirement. Do you want to encourage people to save more, but lack the budget to fund a larger match? Tweaking your formula can help accomplish both goals.
For example, if your current match is 100% of a 3% employee contribution, consider a 50% match of a 6% contribution. It would cost you the same, but the 50% match on a bigger amount has a virtuous multiplier effect—it may encourage higher savings rates, since participants have to increase deferrals to get the full match.
Higher savings could translate into higher balances—and a smaller gap between what participants are saving and what they should be saving to reach their retirement goals—depending on how they invest.
Tip #2—get your 401(k) census up to date
Census data refers to participant information such as Social Security number, email, and home addresses, dates of birth and hire, and compensation. And your recordkeeper uses it to engage with your participants, ensuring that they get important services and information.
By providing your recordkeeper with current census data, you enable them to deliver potentially more secure electronic services, such as email communications, and interact with their account online, and communicate important news about their plan. In other words, providing your recordkeeper with current census data can lead to greater online employee engagement. This is particularly true when ongoing remote work—and recent legislative changes—make participants reliant on electronic delivery of communications, as well as web-based financial advice and wellness tools.
Many recordkeepers offer convenient ways to update your plan’s census information, making this a fairly easy way to boost participant engagement.
Tip #3—promote responsible participant loan use
401(k) loans give a lifeline to participants with a temporary financial need. And having the option to borrow can motivate 401(k) participation and increased savings. But loans can harm retirement readiness, if participants use them too frequently or fail to pay them back. You can help participants use loans responsibly by providing education that discourages overreliance on borrowing, reinforces the importance of disciplined saving, and explains the tax consequences of a loan default. If you offer loans, consider:
- Limiting participants to one loan at a time,
- Communicating the importance of continuing contributions during loan repayment, and
- Allowing terminated employees to continue to repay their loan after they’ve left the company
Tip #4—help participants recover from CARES Act withdrawals and loans
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed qualified participants1 to take penalty-free withdrawals of up to $100,000 of coronavirus-related distributions (CRDs) from certain retirement plans. It also increased the amount a qualified person can borrow from an eligible retirement plan and authorized delayed repayments.
But withdrawals for short-term emergencies might do damage in the long-term. So, encourage your participants to pay back their withdrawals. CRDs can be reversed—and reinvested for retirement—with partial or complete repayment within three years. And coronavirus-related loans can be repaid anytime. So, speak to your 401(k) service provider about your plan’s outstanding coronavirus-related loans or withdrawals and consider encouraging participants to repay and reinvest what they took out—and get their retirement saving back on track.
Also, think about adding an emergency savings account to your benefits offering. This can give employees an alternative to tapping their retirement savings in a future short-term financial emergency by making emergency savings goal based and automatic.
Tip #5—talk to your financial professional, benefits consultant, or TPA about your plan’s health
Year end is a natural time to set goals. And as with personal health resolutions such as exercising more or losing weight, plan health goals should be specific.
What’s a good way to measure—and set goals for—your 401(k) plan’s health? Start by revisiting your objectives for your plan, and talk to your financial professional, third-party administrator (TPA), benefits professional, or service provider about appropriate metrics for your plan, such as savings rates, retirement readiness, loans, and advice. Then, map out a strategy for achieving your objectives in the months and years ahead. This will help you deal proactively with challenges to come, fulfill your ERISA duty to operate your plan prudently, and ensure that your plan design and features are meeting the changing needs of your workforce.
Strengthen your 401(k) without weakening your profits
Helping to improve your participants’ retirement readiness by bolstering your 401(k) plan doesn’t have to be costly. By following these five tips you can help boost your participants’ retirement readiness, do your duty as an ERISA fiduciary, and be a responsible financial manager of your company in a time of heightened uncertainty.
1 A “qualified individual” is a participant, spouse, or a dependent who’s been diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a Centers for Disease Control and Prevention (CDC)-approved test. In addition, a qualified individual is an individual who, due to such virus or disease, experiences adverse financial consequences resulting from the individual, the individual's spouse, or a member of the individual's household (defined as someone who shares the individual's principal residence): being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19; being unable to work due to lack of childcare due to COVID-19; closing or reducing hours of a business that they own or operate due to COVID-19; having pay or self-employment income reduced due to COVID-19; or having a job offer rescinded or start date for a job delayed due to COVID-19.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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