View This Newsletter: Retirement Plan Rx

Overview: The latest news regarding retirement plans has centered around service provider fees. While fees are a highly important aspect of managing an employer-sponsored retirement plan, they are not the only metric of your overall retirement plan’s health.

Bonus Material:

• Rise of the Machines: Robo-advisors are a class of auto-adviser that provide financial advice or portfolio management online with minimal human intervention.
• Participant Loans – Benefit or Detriment: Account leakage due to participant loans is a significant issue in retirement planning with some experts even calling it a crisis.

Summary:

• Types of Retirement Plans
  • Historical focus on defined benefit plans or “pensions”
  • Migration to defined contribution plans such as 401(k) plans
  • The benefits of any 401(k) plan can vary drastically depending on the annual funding decisions of the plan sponsor
  • Studies show less than favorable employee participation rates
• Getting Employees to Join the Plan
  • Education:
    • The best way to encourage participation is to keep the plan straight forward, accessible, and provide access to great educational tools.
    • Most financial advisors are more than willing to help in this endeavor
  • Automatic Enrollment:
    • Automatic enrollment allows an employer to enroll an employee into the company’s plan at a determined contribution percentage unless the employee makes an election not to contribute, or an election to contribute a different amount
  • Roth 401(k) Option:
    • Under the Roth 401(k), employees may contribute funds on a post-tax elective deferral basis, in addition to, or in place of, pre-tax elective deferrals under their traditional 401(k) plans
  • Mobile Options:
    • Providing low-cost apps allows workers to take care of benefits on the devices that they are already familiar with and constantly using
• Increase Deferral Rates
  • Increasing Automatically Enrolled Contributions:
    • The typical 3% default contribution is usually not touched after the initial enrollment, so increasing the rate of the default contribution can further a participant’s chances of a healthy retirement
  • Stretching a Match:
    • To persuade participants to increase contributions, some plan sponsors have adopted a stretched match as a form of motivation
  • Automatic Escalation:
    • With auto-escalation, the contribution level is automatically increased at regular intervals, typically 1% a year, until it reaches a preset maximum.
• Utilizing Your Resources
  • Interaction with knowledgeable plan advisors is a facet of retirement education that is underutilized
  • Future Possibilities: Auto portability just may be a pension innovation worth keeping an eye on

Pinnacle Plan Design is a third-party administrator (TPA) for employer-sponsored qualified retirement plans. We specialize in retirement plan design, administration and actuarial consulting for 401(k)/profit-sharing plans, defined benefit plans, cash balance plans, and 403(b) plans. Pinnacle Plan Design proudly serves businesses nationwide.