Advisers, it’s time for a mid-year check in

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Retirement plan management is best described as a moving target, and there’s still time left for plan sponsors, with their advisers' help, to adjust their practices and procedures and hit the mark if they are falling short of their goals.

First, if plan sponsors and their advisers haven’t done so already, they should review thoroughly the results of their plan’s testing during the first quarter of the year. How do the plan’s nondiscrimination results stack up? If corrective action is required, and hasn’t been completed by the March 15th initial deadline, a 10% excise tax is added and additional IRS documentation is required. Plan sponsors should make those corrections as soon as possible as failure to do so for long enough could put the plan’s tax-advantaged status in jeopardy.

Even sponsors with plans that pass testing should not rest on their laurels. Review this year’s results and compare them to prior years. Are there any negative trends in the data? Have there been any shifts within the organization that could adversely affect testing in the years to come? For example, company ownership changes, reorganizations, and so on. If the answer is yes, then now is the time to take action. No highly-compensated employee wants to receive a corrective refund and subsequent 1099, which is often the corrective action given a testing failure.

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If the trend in testing is negative, plan sponsors have some options to reverse it. The first opportunity is the mid-year enrollment period. Targeted education strategies that highlight the benefits of saving for retirement and the plan may energize participants to begin contributions. A keen understanding of a plan’s demographics is important here. Messaging should be tailored to topics that are top-of-mind to various groups and how those topics relate to retirement savings. For example, target Millennials with effective debt management techniques that coincide with healthy savings.

If the plan falls short
The same logic applies if the plan is short of its goals for the year. Targeted education directed at the participant segments most in need may yield positive results.

If education fails to increase participation or aid progress towards plan goals, plan sponsors and their advisers may consider amending their plans to incorporate new features such as auto-enrollment, auto-escalation, stretch matching, and so on. It may be that a plan’s participants suffer from inertia bias and need that extra push to get started. Ultimately, it is prudent to remember that a retirement plan is a vehicle for the healthy retirement of all a plan’s participants. Any decision or strategy should bear this truth in mind. A cost/benefit analysis of any amendments should be conducted to assess the impact that they may have as to plan costs, as well as the potential improvements in participant outcomes.

This sounds like a lot to accomplish but there’s still time in the year to implement those features — and potentially see their benefit.

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