Charles Schwab notes that as our economy begins to show signs of improvement, one of the most difficult decisions many companies will struggle with is whether or not the time is right to reinstate the 401k match. While there is no question that matching contributions were a serious casualty of the recession, Schwab has found that anywhere from one-third to one-half of firms that stopped or reduced their contributions are thinking about reinstating them during 2010.
As companies begin to evaluate their programs to reinstate the match, below are several key areas that employers should pay particular attention to:
Benchmarking Around Peers and Goals
Employers should compare its plan match formula and overall structure to others in their industry, including similar sized companies and those in their geographical region to see if their retirement plan is still competitive and properly designed to attract the candidates it considers desirable.
Breaking Down Demographics
By breaking down plan participants by their salary level, years of service, position and age, employers can observe participation and savings rates for each category. This will allow firms to better identify any weak spots that need shoring up.
The Plan's Match Ceiling
Schwab's research shows that employees will most often set their deferral rate at the plan's "match ceiling"- the amount of salary they must defer to receive the maximum employer matching contribution. Employers should reset to a higher match ceiling to encourage employees to save more.
Investment Education
The reinstatement of the match is also a great time to rethink other key aspects of a 401k plan. Employers should take the opportunity to remind employees about other strong features of its plan including free advice sessions and workshops, target date fund options that make diversifying and rebalancing easier, or a Roth 401k plan option. Schwab has found that on average, employees who receive consultations more than double their savings rates because they feel more confident about investing and are happier with their plan.
Automatic Savings Rate Increases
While auto-enrollment is increasing in popularity, far fewer companies take an important next step: automatically raising participants' deferral levels each year. For employers this can be a particularly smart move as auto-enrollment plans usually start participants off at a relatively low deferral level and an annual bump-up can help put employees on a stronger path to a more secure retirement.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: 401khelpcenter.com/Rick Meigs
As companies begin to evaluate their programs to reinstate the match, below are several key areas that employers should pay particular attention to:
Benchmarking Around Peers and Goals
Employers should compare its plan match formula and overall structure to others in their industry, including similar sized companies and those in their geographical region to see if their retirement plan is still competitive and properly designed to attract the candidates it considers desirable.
Breaking Down Demographics
By breaking down plan participants by their salary level, years of service, position and age, employers can observe participation and savings rates for each category. This will allow firms to better identify any weak spots that need shoring up.
The Plan's Match Ceiling
Schwab's research shows that employees will most often set their deferral rate at the plan's "match ceiling"- the amount of salary they must defer to receive the maximum employer matching contribution. Employers should reset to a higher match ceiling to encourage employees to save more.
Investment Education
The reinstatement of the match is also a great time to rethink other key aspects of a 401k plan. Employers should take the opportunity to remind employees about other strong features of its plan including free advice sessions and workshops, target date fund options that make diversifying and rebalancing easier, or a Roth 401k plan option. Schwab has found that on average, employees who receive consultations more than double their savings rates because they feel more confident about investing and are happier with their plan.
Automatic Savings Rate Increases
While auto-enrollment is increasing in popularity, far fewer companies take an important next step: automatically raising participants' deferral levels each year. For employers this can be a particularly smart move as auto-enrollment plans usually start participants off at a relatively low deferral level and an annual bump-up can help put employees on a stronger path to a more secure retirement.
Integrity Financial Corporation’s flagship 401k client is the Association of Washington Business (AWB) in Olympia. AWB is Washington state’s premier advocate for the business community and is recognized as The State’s Chamber of Commerce. This plan has a BrightScope Rating of 76, placing it in the top 15% of all plans in its peer group. www.brightscope.com
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k.
Please visit our website at www.ifclegacy.com to have an independent fiduciary 401k advisor at Integrity Financial Corporation analyze and evaluate your company's 401k plan.
Source: 401khelpcenter.com/Rick Meigs
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