Defining Workplace Goals is a Vital First Step to an Effective Retirement Plan

Insight by
Mike Iley

Retirement plans can be as unique as your company and its employees. Yet many committees do not take the time to set specific goals for their plans. Without defined goals, creating an effective retirement plan that meets expectations can be challenging. Here’s helpful guidance about defining your plan goals.

Aligning plan goals with specific features has the potential to improve outcomes. Plan considerations might include who is eligible, whether to make employer contributions, and if it makes sense to automatically enroll and regularly notch up participant deferrals – called auto-escalation.  

Proactively identifying specific goals helps you offer a more competitive benefit that can:  

  • enhance recruiting and retention
  • boost savings rates
  • save you and your employees' money
  • improve retirement readiness and financial wellbeing    

Identifying Key Plan Goals

Identifying 401(k) plan goals is a vital first step in effective plan management. Without clearly defined goals, plans often fall short in key areas, including fiduciary governance, investment offerings, participation, and engagement.  

Here are three common goals business owners should consider as they begin to think about designing a 401(k) benefit that meets their needs, as well as those of their business and employees:

Tax savings for owners

One of the more common ways employers utilize the company’s retirement plan is to maximize their contributions. Whether a pre-tax deferral through a 401(k) and/or by adding a profit-sharing contribution, the employer usually works closely with a TPA to find ways to maximize their saving opportunities.  

Another way employers use this benefit is by saving through a Roth1. The Roth 401(k) does not have income restrictions; you can save up to the general 401(k) limit. Roth contributions are a way to add tax planning flexibility in current and future years.  

And for companies that offer employer contributions – such as a match or profit sharing – they are deductible to the business. This may lower the overall tax burden, especially for sole proprietors, S-Corps, LLCs, and other pass-through entity small businesses.2

Proactive initiatives to enhance successful retirements

Much like a parent has their best interest in mind for their children, plan fiduciaries should always act in the best interest of the plan’s participants. In doing so, two ideas that can help are auto-enrollment and auto-escalation. This is where participants are automatically enrolled into the plan, and then contributions are increased gradually over time (typically 1% per year up to 10-15% of earnings). Automatic features have been shown to improve participation and savings rates.  

According to a recent study, 90% of participants remain in the plan following automatic enrollment. Moreover, 83% of employees say they don’t mind being auto-enrolled at a deferral rate of 6%.3  

The third activity is re-enrollment to rebalance participants into an appropriate investment mix. Generally, the participants are re-enrolled into the plan’s QDIA. By doing this, the asset allocation is aligned with the participant's risk/reward glide path toward retirement.  

Recruit, reward, and retain top talent

When workers evaluate multiple job offers, the quality of your 401(k) plan can make or break their decision to join your company.  

A plan that entices employees to save for retirement at a meaningful rate— by offering employer matching contributions, automatic enrollment, and auto-escalation, for example—has significant potential to be an attractive benefit that can help you stand out in a competitive labor market.  

Providing employees with a powerful retirement plan benefit also enables them to invest more appropriately for the future, including during periods of market turbulence. Having access to a 401(k) plan affords them the advantage of time-tested investing strategies, such as dollar cost averaging, by contributing a portion of every paycheck.

Successful Plan Design Starts with Proactive Planning

Designing a 401(k) benefit that mirrors your goals for the plan may seem intimidating, but it doesn’t have to be. First and foremost, we can help you develop a proactive mindset that defines the plan’s goals and takes the appropriate steps toward achieving them.  

No 401(k) plan design is one-size-fits-all, which is why we are here to help you offer a 401(k) plan that reflects your goals and meets the needs of your business and employees.  

Mike Iley
Managing Director
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