Five more trends for 401(k) Plans.

Plan design has as much to do with plan success than any other variable. If plan sponsors believe a retirement plan will help attract and retain talented employees their plan should be reviewed.

Roth 401(k)s are going to continue to gain ground.  

The advantages of tax-deferred savings have long been part-and-parcel of the pitch behind 401(k) plans.  The notion is simple: defer paying taxes on your savings now, and they’ll add up faster, further fueled by the tax-deferred accumulation of earnings on those balances.  And then, the logic goes, you pay taxes on those monies as you withdraw them—years from now—and at rates that, post-retirement, will be lower.

 

Plan sponsors have long been reluctant to push Roth 401(k)s; their pay-it-now concept on taxes at odds with the traditional tax deferral mantra, and their benefits often seen as skewed toward more highly compensated workers.

 

However, these days, it’s hard to find someone willing to predict lower taxes in the future, even post-retirement.  Moreover, today’s younger (and not-so-highly compensated) workers may very well be paying the lowest tax rates they will ever experience.

 

To date, most surveys indicate that the participant take-up rate on Roth 401(k)s remains modest, something on the order of what self-directed brokerage accounts have garnered (and in many cases, appealing to the same audience).  However, the preliminary results of PLANSPONSOR’s annual Defined Contribution Survey suggest that Roth 401(k)s are cropping up on a surprising number of plan menus.  It’s a trend that, IMHO, bears watching. 

There are a number of enhancements to your qualified retirement plan that may be overlooked. An analysis of your plan would be required to determine the best combination for your company.

Please comment or call to discuss how this affects you and your company.

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Stop Guessing – Start Planning > 4 Traits of the Best 401(k) Plans

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Fees do matter….excess fees go right to the bottom line and reduce retirement accounts. This is a major cash cow for many brokerage firmsand banks.

So what four traits could give you bragging rights?

(1) Risk Mitigation – Either in-house or by hiring an outside firm or firms, your plan has tools in place to mitigate fiduciary liability. How does that help participants? In short, anything you’re doing to reduce your risks is simultaneously a step to provide a better product to participants. For example, hiring an outside advice provider and creating a taskforce in-house to do due diligence will provide protection for participants.


(2) Value for Fees – You’ve benchmarked fees and services against reasonable competitors. The lowest-cost plan isn’t necessarily the best. It’s important to know what services plan sponsors and plan participants are receiving in exchange for fees.


(3) Employee Programs – Your plan features several tools and services to help position employees for retirement, like auto-enrollment, auto-escalation, professional account management options, investment advice and educational communications.


(4) Employee Behaviors – The best plans have high plan usage, a high savings rate and participants who are well-prepared for retirement. How do you accomplish these? You do items one through three from this list really well, and you have a robust communications plan in place to help your employees understand items one through three. Further, you track, measure and report plan usage, savings rates and participant preparedness to your employees.

Many business owners and professional service firms treat their company sponsored retirement plan as a necessary evil. They believe their current service provider is taking care of them and their plan. In many cases this is a mistake.

Please comment or call to discuss how this affects you and your company.

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