Increasing the use of automatic enrollment is one way to do so. About half the 401(k) plans in the U.S. still do not have automatic enrollment, and when it is adopted, it is often a “very rudimentary version” with a 3% default contribution, Iwry said.Iwry suggested several other changes to help achieve the 401(k) plan “3.0.”
- Restructure employer match. Some plan sponsors have been experimenting with a “stretch the match” approach, Iwry said. Rather than a comp
any matching 50 cents on the dollar for the first 6% of an employee’s pay, employers could stretch the match up to a higher percentage of pay. For example, Iwry said, matching 33 cents on the dollar, but up to 10% of pay.
- Give lower-paid employees a higher rate of match. Lower-paid employees, who traditionally save less for retirement, will have more incentive to save. This approach can also help a company with employee retention and recruitment, as well as non-discrimination testing, Iwry said.
- Decrease eligibility waiting period. If companies have long waiting periods before eligibility because of turnover, Iwry suggested they examine whether they can decrease the waiting period and still be OK. Another option is allowing employees to contribute sooner, but with a delayed employer match.
- Examine portability. Iwry suggested employers examine whether their 401(k) plans are accepting rollovers to the extent that they can. “[Are they] being overly cautious about rollovers from previous employers or IRAs?” Iwry added.
For plan sponsors that want to guide their employees to a successful retirement, improvement must be made. Unfortunately, plan participants suffer from apathy when the subject or retirement comes up.
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