Retirement planning is an increasingly high-stakes endeavor among Human Resources departments today.
Not only is it fraught with compliance and fiduciary landmines, but longer-term employee welfare matters also hang in the balance.
Your plan design and its parameters play a big role in your ability to recruit and retain the best and the brightest employees.
But you also need to constantly evaluate your retirement benefits against a changing workforce, making sure they reflect features that every demographic in your employ will value – whether automatic enrollment, portability or providing access for retirement and/or financial planning services.
Your ultimate challenge, though, is the need to ensure that your retirement benefits do the job of helping today’s employees prepare for tomorrow, because retirement is a growing concern across the board. Various studies make the point:
Some 83 percent of Americans worry over their ability to retire given current economic conditions, and 70 percent think it’s harder to retire today than in previous generations, according to the National Institute on Retirement Security.
The Insured Retirement Institute found in 2016 that only 24 percent of Baby Boomers are confident they have sufficient savings to last them through retirement, down from 36 percent in 2012.
A Transamerica study found that only 12 percent of Gen Xers are confident of a comfortable retirement.
Doing it right means taking a close look at the most important influences over the effective retirement plan design. Among them:
Investment firm evaluation and benchmarking. There’s a lot of due diligence that goes into your selection of the right investment partner for your plan and your employee population. At least three prospective partners should be vetted and ranked by measures that include fund types, how they’ve performed and fee structures. Also important are the quality and clarity of their employee communications materials and the responsiveness of their customer service.
Forecasting and budgeting. What do you anticipate enrollment in your retirement plan to reach? Have you accurately gauged interest and likely participation over time based on employee demographics, eligibility, incentives and education? Having the right – or realistic – expectations and projecting accordingly will enable you to more precisely budget for your contribution matching commitment and avoid expensive surprises.
Auto-enrollment and auto-escalation. The more painlessemployees find the process of enrolling in their employer-sponsored retirement plan, the more likely they are to participate.
Auto-enrollment should be offered to all employees, not just new ones, as they’re all more likely to participate even if given the choice to opt out.
With auto-escalation, their pre-tax contributions go up a little each year in an ordered fashion until they reach their target savings rate. Both make it easier for everyone to plan and budget for their pre-tax financial commitments.
Compliance testing. Contributing to a 401(k) comes with significant tax advantages, but compliance testing with regulations can be daunting. Your eligibility rules and contribution guidelines must be established and clearly laid out, and testing undertaken (e.g. non-discrimination and limit tests) to ensure participation meets the rules and complies with the regulations.
Automation features. Online enrollment should be a seamless experience for your workers. Among other things, this means that the enrollment pages on the site of your retirement service provider are linked to the web pages for your core employee benefit plans.
Framing out supplemental plans. It’s also important to consider and properly frame out any supplemental plans to your main plans. For example, you may want to institute a non-qualified 409(a) deferred compensation plan as another tax-deferred savings option for certain employees who have maxed out their 401(k) plan.
Between designing a plan that meets everyone’s needs, administering it, ensuring that your employees are consistently informed about their options, and staying on top of compliance, retirement plan administration can be a complicated and time-consuming effort.
But the payoff is an organization and a workforce that is better prepared for tomorrow.
Linda Keller is the National COO and Employee Benefits Practice Leader for Hub International.