Get the Most from Retirement Plan Design
- Business Ownership
As a 401(k)-plan sponsor, you want your employees to have a secure retirement. Regulations allow abundant flexibility in retirement plan design to meet your needs as an employer and help your plan participants get ready to retire. However, you may not be aware of just how flexible your plan can be. Here are a few ideas to consider when designing your company-sponsored retirement plan.
Employer Contribution Match “Stretch”
When an employer includes matching contributions in their plan, there is an increase in the number of participants who join the plan. As you might guess, the most common rate of deferral is the maximum amount of the employer match. So, when an employer matches the first 3% of contribution, more employees will contribute 3% of pay than any other amount.
Increasing the maximum match threshold (the amount a participant will have to contribute to get the maximum match) has a measurable effect on contribution rates. This happens even if the employer is matching at a rate of less than dollar for dollar. So, an employer matching contribution at the rate of 50% of the first 6% employee deferral will prompt many 401(k) participants to contribute 6%. Yet, the maximum potential company match is no greater than the 3% match rate mentioned above.
One of the frustrations with participant behaviors is that it is easier for an individual to maintain the status quo than to take an affirmative action. Citizen’s & Northern Bank works hard to educate employees of the need to save for retirement, striving to shift employee attitudes from thinking of current gratification to working toward specific retirement savings goals.
Another significant way to help your employees save more is by implementing the option within the plan design of automatic enrollment. The auto enrollment approach lets an employer enroll all eligible employees at a stated deferral contribution rate. Individuals can opt out of the automatic contribution arrangement rate via a check-box on an enrollment form. Concern that employees will see this as overreaching can be put aside. As we have added the feature to plans, we have been told “Thank you for doing this. I’ve been meaning to enroll but never got to it.” In fact, according to data from a retirement services firm. Ascensus, out of all of the employees that were automatically enrolled into a retirement plan, under 1% chose to opt-out. Automatic enrollment uses that tendency we have to not rock the boat and uses it to participants’ benefit to save more for retirement.
Roth 401(k) Deferrals
Saving funds for retirement on a pre-tax basis provides immediate tax savings for plan participants. On the other hand, Roth after-tax deferrals can provide tax savings at the time funds are used. For plan participants who have reason to believe they will be in a higher tax bracket at retirement and especially for those who would like flexibility to use either taxable or non-taxable benefits from year to year during retirement, having a Roth option in your plan can be useful.
How C&N Can Help
On the C&N Retirement Services team, we have the knowledge and experience to help you refine your goals in offering a 401(k) plan to your employees and implementing the important solutions. Explore our Retirement Plans and contact us to set up a complimentary and objective discussion of your plan design, investment options and more.
Some products are not FDIC insured or guaranteed, not a deposit or other obligation of the bank, not guaranteed by the bank and are subject to investment risk, including the possible loss of the principal amount invested and are not insured by any other federal government agency.