As a plan sponsor, you have the opportunity to support your employees in confidently pursuing their long-term financial goals. Offering a retirement plan is a critical component of this support, and taking proactive steps to improve outcomes for your participants helps keep them on track for a stable retirement. In addition, supporting your employees in this important function can help you attract and keep high-quality employees (1)—which can offer immense benefits to your business. In this article, we’ll discuss five ways plan sponsors can enhance retirement outcomes for their participants so that they can improve their retirement outcomes and the plan sponsors can better support their employees.
Provide Financial Education and Resources
Unfortunately, many people in America simply aren’t great when it comes to their finances. Studies vary, but a recent one by Standard & Poor’s found only 57% of U.S. adults are financially literate. (2) In addition, credit card debt is at an all-time high, (3) adding to the stress people feel about money. In short, people need more help and education when it comes to personal finance and their retirement—and that’s how you can help. By offering financial education and resources, plan sponsors can empower their participants with the knowledge and tools necessary to make informed decisions. This can include workshops, webinars, online resources, and personalized consultations with financial professionals.
Include Target Date Retirement Funds
Target date retirement funds (TDFs) offer a simplified investment option for participants. These funds are designed to adjust their asset allocation over time to become more conservative as the participant approaches retirement. This provides participants with a “set it and forget it” investment option that can help take the guesswork out of retirement investing. Offering this simple yet effective investment strategy can help participants who may feel overwhelmed when looking at dozens or hundreds of investment options.
Optimize Employer Match Contributions
One of the most effective ways to encourage employees to save for retirement is through employer match contributions. By optimizing the match formula, plan sponsors can incentivize employees to save more. While you can increase the amount of match you put into the plan, you don’t necessarily have to do that to optimize your match and incentive contributions. For instance, instead of contributing 100% of the first 3% that an employee contributes, you can instead match 50% of the first 6% that a participant contributes. While the net dollar amount is the same to the plan sponsor, this change can incentivize participants to reach that 6% threshold to receive the full amount of the match.
Require Annual Re-Enrollment
Annual re-enrollment is a best practice for retirement plans. Simply stated, annual re-enrollment provides participants with an opportunity to review their investment options and adjust their contributions if necessary. By requiring annual re-enrollment, plan sponsors can encourage participants to stay engaged with their retirement plan, investment strategy, and make informed decisions based on their current financial situation. In addition, this also may lower your risk of liability since participants can review their choices regularly and be more informed about their plan.
Offer Roth Option to Diversify Tax Savings
Adding in the option to allow participants to make Roth contributions can allow for tax diversification in their investment accounts as well as in retirement. While traditional contributions are made with pre-tax dollars and taxed upon withdrawal, Roth contributions are made with after-tax dollars and withdrawals are tax-free. By offering a Roth option, plan sponsors can provide participants the flexibility to choose the type of contributions that best suit their financial situation.
Are Your Participants Ready to Retire?
By utilizing these strategies, plan sponsors can empower their participants to make informed decisions about their finances and guide them on the path to a better retirement. If you’re a plan sponsor looking to enhance your retirement plan, don’t hesitate to reach out to me at firstname.lastname@example.org. I’d be happy to help you explore these strategies and more to support your participants in realizing their long-term financial goals. As your financial advocate, our team is your team!
Dan Shapiro is a retirement plan advisor and holds the Accredited Investment Fiduciary® and Certified Plan Fiduciary Advisor certifications. With over 30 years of experience in the industry, Dan guides his clients through the entire retirement plan process, from plan design to compliance to investment oversight. His goal is to provide his plan sponsor clients with the ability to offer the right retirement plan the right way to their employees—a plan they can be proud of. He is one of the original 100 Accredited Investment Fiduciary® practitioners in the United States and uses his knowledge and experience to implement best fiduciary practices to ensure employees have appropriate investments to choose from and employers have a well-documented fiduciary process in place to mitigate risk. Dan is known for taking the time to understand his clients’ unique goals and situations and applying his holistic approach to customize and develop tailored strategies to improve outcomes and take some of the plan sponsor burden off their shoulders.
When he’s not working, you can find Dan at the park and marina near his house training his Australian Shepherd. He cherishes his frequent FaceTime calls with his grown children who live in Israel. In fact, Dan and his wife, Rita, consider their proudest life achievement to be raising their two children, Ashley and Joshua, to be productive and principled adults. Dan and Rita love to entertain, especially when it includes making great food with the smoker and barbeque. To learn more about Dan, connect with him on LinkedIn.
Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).
(1) Forbes. (2022, August 24). Why Offering Retirement Benefits Helps Attract and Retain Top Employees. https://www.forbes.com/sites/forbesfinancecouncil/2022/08/24/why-offering-retirement-benefits-helps-attract-and-retain-top-employees/?sh=209da5243710
(2) Annuity.org. (2022, July 19). From the Experts: Is Financial Illiteracy a Growing Problem in the U.S.? https://www.annuity.org/2022/07/19/is-financial-illiteracy-a-growing-problem-in-the-us/
(3) CNBC. (2023, February 3). U.S. credit card debt jumps 18.5% and hits a record $930.6 billion. https://www.cnbc.com/2023/02/03/us-credit-card-debt-jumps-18point5percent-and-hits-a-record-930point6-billion-.html