401(k) PITFALLS || 401(k) SOLUTIONS || HOW HEALTHY IS YOUR 401(k) ?


401(k) Solutions

It is possible to solve the four major pitfalls faced by most 401(k) Plans, and we have helped our clients do it for years.

The solutions are:

  • Low Participation - Automatic Enrollment in the 401(k) Plan efficiently and effectively eliminates the problem of low participation. We were one of the first firms to recommend this solution and our clients have successfully used Automatic Enrollment for years and years on thousands and thousands of employees. Automatic Enrollment simply switches the usual response to the question, "What do we do with employees who don't respond to the enrollment material?" Instead of excluding them from the Plan, Automatic Enrollment includes them. It is that simple, and in our Plans it has boosted participation to around 95%. If you aren't using it now we can show you how to make it work for you.
  • Low Contribution Rates - First and foremost, set an appropriate default Automatic Enrollment contribution rate. We normally recommend enrolling employees at the rate necessary to capture all the employer matching contribution. For example, if your Plan matches 50¢ on the dollar up to 5% of pay, enroll employees at 5%. Second, implement $uper$aver, our unique program that automatically increases contribution rates 1% each year. Most employees intend to increase 401(k) contributions as their earnings increase, but few actually do. $uper$aver does it for them.
  • Yield Disparity - Micro and macro yield disparity can be eliminated with a few Plan design features. Start by including premixed efficient frontier investment portfolios or a professionally directed investment (PDI) option, or both, for employees to choose from. In addition, set an appropriate default Automatic Enrollment investment option - do not use money market! Contributions from employees who did not respond to the enrollment material should go into PDI or a portfolio of 60% stocks and 40% bonds.

    We have successfully implemented these investment strategies for our customers and the results are dramatic.


  © 2007 Brooks Hamilton & Partners