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:
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.
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.
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.