Helping employees achieve retirement readiness has become the widely accepted goal of most 401(k) plan sponsors. The following 401(k) plan attributes are generally felt to promote employee retirement readiness:
Plan Design
- Auto-enrollment. Automatic enrollment of all new participants at a default contribution percentage of at least 3%.
- Auto-escalation. An increase in participant contribution percentages of 1% per year, typically up to a maximum of 10%.
- Auto re-enrollment. Automatic enrollment each year of any participant who opts out of initial enrollment at their time of hire or who stops contributing during the year.
- Hardship withdrawal provisions for loans. In an effort to plug leakage, requirement of hardship withdrawal criteria in order to take a participant loan.
Contributions
- Roth 401(k) availability. Participant ability to elect to make after-tax Roth 401(k) contributions.
- Extended employer match. An employer match spread over a larger percentage of employee contributions. For example, 25% of the first 12% rather than the standard 50% of the first 6%.
- Catch-up contributions. For those participants age 50 and older, the opportunity to make additional 401(k) catch-up contributions.
Investments
- Availability of index funds. For those participants who believe that passive investment is the only way to go.
- Right number of fund choices. More is not better with regard to fund choice. More is confusing. Most experts feel that the right number of funds is generally around 12 (not including target date fund options).
- Availability of target date funds. Professionally managed target date funds for those participants who prefer to have someone else manage their account.
Do your clients offer leading edge 401(k) plans with the retirement ready features outlined above? Make sure that they do by offering to conduct a plan design review.
Contributing Editor Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC a Registered Investment Advisory firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. Mr. Lawton has over 25 years of experience working with corporations on their retirement plans and is a Chartered Retirement Plan Specialist (CRPS) and Accredited Investment Fiduciary (AIF). Mr. Lawton was named as a Top 100 Retirement Plan Adviser by PLANADVISER and a Top 300 Retirement Plan Adviser by 401(k) Wire. Mr. Lawton may be contacted at
