Plan Design Consulting
Optimized plan design is the number one driver of successful retirement outcomes for employees.
Streamline the Pathway to Success
Retirement plan success requires clear, attractive plan features that guide employee financial actions and which encourage employees to help themselves.
High-Impact Plan Design
The right plan design can lead directly to increased participation, healthy salary deferrals and participant satisfaction. For example, one of our clients, a non-profit organization, added an automatic enrollment feature that almost immediately increased employee participation from 62% to almost 95%. Others see strong results by “stretching” their employer match. Changing a dollar-for-dollar match on the first 3% of pay to 50% match on the first 6% of pay can increase the average participant deferral without costing a nickel more in employer dollars. Using higher deferral percentage for matching has the added behavioral effect of setting a mental anchor point in employees' minds as they decide how much to invest for retirement.
Rethinking Plan Features
Certain plan provisions can have the unintended consequence of encouraging harmful savings habits which can impact an employee’s ability to retire with dignity. Consider these following features that may improve employee retirement outcomes.
Plan Feature 1: Stretch your employer match budget by applying a smaller match up to a larger percentage of pay.
Reason: Many employees set their contribution at the match level, so a 100% match on x% of pay will incent employees to save only to that level. A 50% match up to a higher percent of pay incents them to save more.
Plan Feature 2: Set the auto-enrollment default contribution to 6% of pay.
Reason: The default contribution rate sets a behavioral anchor point, and the common use of a 3% default has actually lowered average employee contributions in recent years. Studies show that very few employees opt out when the default contribution is instead set at 6%, putting them closer to achieving retirement sufficiency.
Plan Feature 3: Add auto-escalation to your auto-enrollment feature.
Reason: Many employees make no change from their initial default contribution level, not by choice but solely due to inertia. An annual 1% or 2% automatic contribution increase (employees can opt out at any time) reduces barriers to better savings rates.
With that said, exceptions may exist and working with a professional retirement plan advisor is an optimal way to distinguish the plan features that support your goals.