Jay Pluimer, AIF® CIMA® Thursday, 12 January 2017
The turning of the calendar year is a great opportunity to create a list of resolutions that can improve your life. I am going to leverage my Holiday practice making lists and checking them twice to help clients make sure they have a 401k or 403b Plan that is working effectively for both the employer and the employees. So here is my list of New Years’ Resolutions for a retirement plan:
- Check Your Plan Participation Rate – a study by Vanguard earlier this year indicated that a 72% employee participation rate is a good target for most small business owners, as that is the average for plans with under $20 million.
- Consider Automatic Enrollment – the same study by Vanguard demonstrated that adding automatic enrollment for eligible employees would increase participation rates to 85%.
- Automatic Enrollment Isn’t Just for New Employees – although Automatic Enrollment is a great way to get new employees invested in the 401k or 403b Plan (with the ability to opt out at any time), some companies are also using this feature for existing employees who might have already been employed when Automatic Enrollment was adopted but slipped through the cracks of getting into the plan.
- Check Your Employer Match – industry standards for the employer match are always changing, and the match is frequently an effective way to increase how many people participate in the plan while potentially increasing the contribution level.
- Consider Automatic Escalation – although Automatic Enrollment and Automatic Escalation are often used in tandem, employers can also use these features separately as relevant for the employee base. Automatic Escalation can help employees work towards the target 10% to 15% annual contribution rate.
- Create an Education Policy Statement – strong employee education is the most effective way to increase plan participation along with contribution levels. An Education Policy Statement is an opportunity to lay out a plan for providing education throughout the year with the benefit of holding the employer (and plan advisor) accountable to fulfill the plan.
- Maximize Contributions – the maximum contribution for 2017 is $18,000 for employees under the age of 50. Anybody who is over 50 or who will turn 50 at any time during 2017 is eligible for a “catch-up” contribution, bringing their maximum to $24,000. Note that maximum contributions do not include matching dollars from the employer.
- Complete Fiduciary Audit Checklist – take time early in the New Year to make sure your company is maintaining complete and accurate records for the retirement plan. You can visit www.irs.gov/retirement for a summary list of key plan requirements.
- Evaluate the Retirement Plan Committee – the group of owners, leaders and employees who maintain oversight for the company’s retirement plan should include people who are engaged and passionate about having a successful plan in place. This could be an opportunity to bring in a new perspective that can provide some extra energy for the Committee.
- Confirm Fiduciary Status – the employer will always be a fiduciary for the retirement plan, but there are many options available to share the fiduciary responsibility with other parties. Check with the Plan Advisor and Third-Party Administrator (or Recordkeeper) if they are currently sharing the fiduciary responsibility. If not, ask if they offer fiduciary-level services so you can evaluate if those are appropriate for your company.
Hopefully at least a few of these New Year Resolutions will provide opportunities to enhance the retirement plan at your company. The ultimate goal is to fully align the employer and the employees to create an effective solution. As always, make sure to get clear communication on the pricing for services in the retirement plan to make sure the company is receiving a good return on investment. If you are a business owner or know about a business that could use a fresh look at the company’s retirement plan, please contact our team for a free plan review to benchmark the plan design, investment options, and overall expenses.
Best wishes for a successful 2017 and beyond!
About the Author
Jay Pluimer brings over 25 years of experience working with Investment Committees and individual investors to Flourish Wealth Management. He has built a career focused on investment research, client conversations about investments, and building diversified portfolios to help clients accomplish their goals. As Director of Investments, Jay is passionate about the opportunity to deliver individualized investment solutions for our clients that help align their resources and goals.