It is no secret that a corporate 401(k) plan provides many benefits to both employers and employees. But what is perhaps lesser known is that how that plan is designed has a huge impact on the resulting benefits. Business owners must identify the features and options they want to see in a plan before sitting down with an administrator. Owners should consider the needs of their employees when designing a plan. When owners include their employees’ wishes in their planning, they demonstrate that they are invested in their team which leads to better company morale and employee retention. Once owners have identified their wish list, they are ready to work with a retirement plan administrator like RPCSI.
RPCSI works with hundreds of clients and each one is unique. We work closely with each client to design a plan that will meet their company goals and needs. To be certain that we align plan design with company goals, we ask our clients a few questions, such as:
· What results do you need from your retirement plan as a plan sponsor for your company to consider your retirement plan to be a success?
· What are the key goals for implementing a retirement plan for your company? For example: saving on taxes, deferring income for owners, helping employees save for retirement, or reducing future health care costs due to an aging workforce.
· What is your end goal in implementing a retirement plan for your company?
Once that stage has passed, we examine how much of a tax deduction a company is willing to take to get to where they could maximize their deferrals without ever worrying about it. When we get into the details of plan design, the conversation can diverge in a myriad of ways due to all the possible combinations. Regardless of unique goals, there are five plan design considerations that we discuss with owners.
Eligibility: this covers when new employees can start participating in the plan and what factors determine their ability to enroll—such as age, hours worked, employment class, and/or enrollment periods.
Contributions: There are several decisions to be made regarding contributions. For employees, how frequently will they be allowed to change their contributions? Are they automatically enrolled, or do they have to opt-in? For employers, what contribution fits your savings goals or budgetary needs? A popular choice is a Safe Harbor plan where the company commits to all employees sharing in the commitment to save for retirement with those employees who choose to make their contributions.
Vesting: This term refers to a participant’s ownership of the money in their account. If an employee is 100% vested, they own all the money in their account balance and the employer cannot take it back for any reason. Companies must decide when their contributions to participant accounts will be vested.
Distributions: There may be times in which a participant needs money from their account in the form of a distribution. This can occur for a variety of reasons – anything from termination to a hardship event. Decisions must be made about when distributions are allowed and how that money is distributed.
Loans: Employers can allow or disallow loans within their plan design. Loans are typically a popular feature for participants, but employers must recognize that this adds a level of complexity to their role as Plan Sponsor. If owners choose to allow loans, they must determine how the loans will work – how much can participants take, how much interest will they repay and what will the repayment schedule be?
We understand that designing the perfect 401(k) plan for your organization can be intimidating. There are a lot of decisions to be made and a multitude of factors involved. The good news is that we are here to help you with this process. We determine what the end goal is and work backward to design a plan that best meets your desires. If the company goals change over time, you can adjust your plan to meet those needs. Ultimately, the goal is ensuring that your employees are retirement ready and heading toward financial security when they leave your company. “The perfect retirement” is the core philosophy behind what we do, and it drives our entire firm to serve our clients and their employees. Let us know how we can help you achieve the perfect retirement through proper plan design.