Add Some Muscle to Your Company's Retirement Plan
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The points below highlight some plan provisions that may strengthen your company's retirement plan by adding some muscle to the participant experience, while keeping common sponsor concerns at bay:
- Eligibility with little or no service requirement. Employers may impose a service requirement for participants to be able to make salary deferral contributions because they think it will keep administrative costs lower, ease the issues associated with employee turnover and aid in passing annual discrimination testing. However, there are mechanisms in place to help control these issues. Employers can retain service requirements on profit sharing or matching contributions, but allowing participants to defer quickly after hire is a statement that the employer encourages retirement savings; this is an attractive benefit to new employees.
- Roth deferral feature. The Roth feature has been available since 2006. Allowing Roth deferrals is simple for plan sponsors, and gives participants the flexibility to defer some or all of their contributions on an after-tax basis; consequently, this provides more opportunity for employees to strategize their retirement income, and further enhances your retirement plan program.
- Automatic enrollment. Some employers shy away from automatic enrollment because they fear the backlash of employees who didn't want to be enrolled, but didn't take the necessary opt out actions. However, with the advent of the Qualified Default Investment Alternative (QDIA), the auto enrollment feature can be an effective means to increase participation, increase plan assets, decrease administrative costs, assist with nondiscrimination testing and provide plan sponsors with liability protection.
- Stated matching provisions. A stated match is where the plan sponsor states the full matching formula in the plan document. Why is the stated match a problem? If the business falters or improves, any change to the matching formula will require a plan amendment. A simple resolution is to keep the match language discretionary within the document.
- Payments other than lump sum in cash. Plan distributions to former participants should be kept relatively simple to avoid any administrative headaches. Setting up payments as periodic installments can create the potential for distribution glitches as well as expose the sponsor to increased fees and liabilities. Why expose yourself to potential problems and errors by adding multiple payment options.
Disclaimer: Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Assurance Financial Services, Ltd and Assurance Agency, Ltd are not affiliated with Kestra IS or Kestra AS. Assurance Financial Services, Ltd is a wholly owned subsidiary of Assurance Agency, Ltd.
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