Making a Good Retirement Plan Better
One of the key components to becoming a best-in-class retirement plan is the desire to continually evolve. However, due to complacency or certain circumstances - the current global pandemic, for example - an otherwise well-run retirement plan may find itself stuck, unable to move the plan forward in a meaningful way.
For both those plan sponsors yearning to be best-in-class and those in need of a catalyst for change, we share some key tenets to optimize the effectiveness of your organization’s retirement plan.
- Add or Enhance Automatic Enrollment — Retirement readiness is the goal of most organizations’ retirement plans. One of the most effective plan design features to help achieve this goal is auto-enrollment. Best-in-class plans often adopt auto-enrollment at a minimum starting deferral rate of six percent, with an annual increase of one percent up to a total of fifteen percent. For those plans that have yet to adopt auto-enrollment, have not yet adopted it for everyone, have adopted it at a lower default level, or without automatic increases, this is an opportunity for significant improvement. Learn more about the benefits of auto-enrollment here.
- Eliminate Revenue Sharing — A target of retirement plan litigation, revenue sharing is difficult for employers to explain and nearly impossible for employees to understand. It can also decrease overall pricing transparency, with the only corresponding benefit being the ability to pay plan expenses from excess revenue sharing - which plan sponsors can do by passing those fees on to participants. While some plans, particularly 403(b)s, utilize investments that maintain revenue sharing arrangements that cannot be mapped to new investments, plan sponsors can “stop the bleeding” by using zero-revenue sharing funds for contributions moving forward. For everyone else, eliminating revenue sharing is a relatively simple step to improve a plan.
- Reduce Recordkeeping Fees — Conducting regular recordkeeper requests for proposals (RFPs) is considered best practice and typically results in a reduction in fees. However, plan sponsors can also simply ask recordkeepers to reduce their fees. If the vendor says no, ask why. There is often something that the plan sponsor can easily change - such as reducing loan utilization through policy changes - that can make the plan more cost efficient and thus allow the recordkeeper to reduce fees.
Organizations that continually strive to improve their plan rarely fall behind their peers and are more likely to have successful retirement outcomes for their employees. Taking steps - whether large or small - to drive positive change can help make a good retirement plan better.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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Investment advisory services available through Cammack LaRhette Advisors, LLC.
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