As a plan sponsor, do you feel your employees have a clear understanding of the company’s retirement plan?
Do most utilize it as a tool to save for retirement—and, if not, do they understand the benefit that they are missing? According to the 2022 PLANSPONSOR Participant Survey, 115 of 774 (14.9%) respondents opted not to participate in a workplace defined contribution plan for various reasons. 18.3% of those that declined to participate said it was because they need to better understand the benefits of participating. 15.7% said they needed their income for day-to-day expenses. 50.5% of the nonparticipating employees were between the age of 18 through 39, 44.3% were age 40 through 59. This means that participants of all ages would benefit from additional education and encouragement.
Getting started is a very important first step. Automatic enrollment provisions are popular and allow participants to begin their employee contribution deferral at a default rate (stated in the plan’s document), such as 3%, unless they elect another amount or proactively opt out. Keep in mind that, since they do not have to make an active election to begin deferrals, they may not take advantage of the education materials available to them as part of the enrollment process. Education materials come in many forms, from simple informative handouts that explain the benefits of starting early, to more advanced retirement accumulation calculators that help the participant understand how the actions that they take now might affect them at retirement age. Websites are available that may help participants determine the appropriate amount to save for their retirement based on their current financial situation. The information shared with participants during the enrollment process will vary based on the recordkeeper or investment platform where the plan funds are held; further resources may be provided by the plan’s investment advisor.
It is also quite common in today’s employment arena to have employees who are focused on paying off student debt instead of contributing to a retirement plan. One can certainly understand their dilemma. If your plan currently offers an employer matching contribution, the optional matching contribution on student loan payments may be beneficial. This provision, offered through the Secure Act 2.0, would allow a participant to continue making loan repayments, while remaining eligible to receive a matching contribution funded to the plan on their behalf, helping them to begin building an account balance. This optional matching ability is new and will be available beginning January 1, 2024.
Some participants are hesitant to participate in an employer sponsored plan since it can be more difficult to access their account balance for hardships or other life events. To ensure that employees feel as though they will have access to the funds if they do contribute, you can choose to include several types of distributions in your plan document provisions, including the following:
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