Diversified has created a road map for plan sponsors to help them design the best retirement plan for their employees.
“Effective Communications Begins with Purposeful Plan Design” urges plan sponsors to review their plan’s design before they develop communication or education materials to ensure all features support the key objectives.
It also offers guidance for maximizing opportunities to shape participant behavior to help employees save for retirement.
The report recommends that plan sponsors implement automatic enrollment at a minimum default rate of 3 percent or higher and integrate automatic escalation to improve participants’ retirement readiness over time.
It also recommends going above and beyond when considering an employer match. Instead of doing a 100 percent match up to 3 percent of pay or a 50 percent match up to 6 percent of pay, the paper recommends extending the match to 25 percent up to 12 percent of pay, to get people to increase their average savings rate to take advantage of the match.
Limit the number of investment options. Plans that offer 10 to 14 funds have the highest participation rates, Diversified found. The company also suggested that plan sponsors limit plan loans.
“If your plan is falling short on average balances, loan activity is likely to be at least partly to blame,” the paper stated
“Effective participant communication is essential to a successful retirement savings plan, but not even great communication can make up for poor plan design,” said Patricia Advaney, senior vice president of participant solutions at Diversified. “To communicate with purpose and positively impact participant behavior, plan sponsors must review their plans on a regular basis to ensure all features are working in tandem to support key objectives.
Diversified provides customized retirement plan administration, participant communication and open architecture investment solutions for mid-size and large organizations.