Three Strategies to Boost Participation, Protect Fiduciaries, and Support Employee Retirement Success

As a retirement plan sponsor, you want your employees to retire with dignity. You also want to protect your organization from compliance pitfalls. Three proven strategies can help you accomplish both goals: implementing a Safe Harbor contributions, designating a Qualified Default Investment Alternative (QDIA), and leveraging automatic enrollment.

Each of these approaches tackles a different challenge, but together they create stronger participation, greater fiduciary protection, and better financial outcomes for employees.

Safe Harbor Contributions: A “Get Out of Jail Free Card” for ADP/ACP Testing

Safe Harbor contributions are one of the most straightforward ways to simplify retirement plan administration. By offering a Safe Harbor match or non-elective contribution, plan sponsors automatically satisfy the government’s non-discrimination requirements. In other words, you don’t have to worry about failing ADP or ACP testing that compares contributions of highly compensated employees to the rest of the employee population.

Safe Harbor contributions are also an attractive recruitment and retention tool. Common formulas include:

• 100% match on the first 3% of deferrals, plus 50% on the next 2%
• 100% match on the first 4% of deferrals
• 100% match on the first 5% or 6% of deferrals

In nearly all cases, Safe Harbor contributions are immediately vested, giving employees ownership from Day One. The exception is the QACA (Qualified Automatic Contribution Arrangement) Safe Harbor, which requires auto-enrollment at 3% with automatic escalation and allows a two-year vesting schedule.

The biggest hurdle for many employers is typically cost. That’s where a match-cost analysis comes in. By reviewing employee census data, we will prepare a match-cost analysis so plan sponsors can estimate the true cost of adopting various Safe Harbor formulas, taking into account current participation as well as potential increases if the benefit becomes more competitive. This analysis helps employers see the cost range to make an informed decision.

QDIA: Fiduciary Protection Through Default Investments

A Qualified Default Investment Alternative (QDIA) provides a safety net for both participants and plan sponsors. If an employee is auto-enrolled or signs up without selecting an investment option, the plan can default their contributions into a QDIA.

Common QDIA structures include:

• Target Date Funds (TDFs): Diversified portfolios based on the employee’s age and expected retirement year, which automatically adjust to become more conservative over time as the participant nears retirement.
• ‍Balanced Risk-Based Funds: Diversified portfolios that maintain a set risk level.
• ‍Custom Model Portfolios: Similar to managed accounts (without the added costs), these portfolios are often tailored based on age, risk tolerance, and retirement horizon.

The key advantage of designating a QDIA is fiduciary protection. As long as the plan gives participants notice before defaulting them into a QDIA, employees can’t later claim fiduciary mismanagement if they chose not to act. This disclosure process essentially provides an “investment Safe Harbor” for the plan sponsor.

Auto Enrollment: Nudging Employees Toward Better Outcomes

Behavioral finance tells us that inertia is powerful. Many employees want to participate in their retirement plan but never take the steps to enroll. Auto enrollment flips the script by making participation the default: employees are automatically enrolled unless they opt out.

The results speak for themselves. According to the Plan Sponsor Council of America’s 2022 survey, 64% of plans have auto-enroll, and 78% auto-increase deferral rates, resulting in participation rates averaging around 90%. Employees receive advance notice and can choose to opt out or change their contribution rate—but most stay in, often relieved that the decision has been made for them.

For employers, higher participation is more than just good for employees. It also:

• improves ADP testing results if Safe Harbor is not adopted;
• increases purchasing power with service providers as plan assets grow, potentially lowering fees; and
• supports workforce productivity and wellness, since financial stress is the number one distraction employees cite at work.  

Ultimately helping employees save for retirement reduces this burden and allows them to focus on their jobs, which is a benefit that redounds back to the employer, of course.

Bringing It All Together

Safe Harbor contributions, QDIA, and auto enrollment each serve different purposes, but together they form a powerful trio:

• Safe Harbor contributions ensure compliance and supports talent retention.
• QDIA provides fiduciary protection and smart default investing.
• Auto enrollment drives participation and improves financial wellness.

For plan sponsors, adopting these strategies means more engaged employees, stronger compliance safeguards, and better retirement outcomes across the board.