June 11, 2012
--- Diversified is offering a white paper of best
practices for ensuring a plan sponsor’s retirement plan is designed to help
employees achieve their savings goals. ---
“Effective Communication Begins With
Purposeful Plan Design” urges plan sponsors to spend time reviewing their
plan’s design before developing new communication or education materials to
ensure all features support the key objectives. It also offers guidance for
maximizing every opportunity to shape participant behavior to help employees
save for a well-funded retirement.
Highlights from the white paper
- Implement automatic enrollment to optimize its benefit.
More than half of all plans that auto-enroll employees use a default rate
of 3% or less. Don’t follow the crowd. Consider setting a default
rate that is at least as high as your current opt-in rate and integrate
automatic escalation to improve participants’ retirement readiness over
- Design employer contributions to maximize plan
objectives. Despite studies showing the impact of matching contributions
on savings rates, many sponsors default to standard formulas such as a
100% match up to 3% of pay or a 50% match up to 6% of pay. If increasing
the average savings rate is a key goal for the plan, consider extending
your match to 25% up to 12% of pay. In many plans, the rate at which the
match is maximized is the most commonly chosen participant contribution
rate, therefore, stretching this incentive will likely result in higher
- Narrow the number of investment options. Research shows
that the number of available investment options is directly related to
participation. Plans that offer 10 to 14 funds have the highest participation
rates, but as more funds are added, rates decline. While
retirement professionals may appreciate the subtle differences among asset
allocation plans, target date funds, and one-decision investing solutions
– the average participant does not. For many participants, more options
implies more work.
- Limit plan loans. Eighty-seven percent of all
retirement plans offer loans, and 47% of plans offer multiple loans. If
your plan is falling short on average balances, loan activity is likely to
be at least partly to blame. If improving employee retirement readiness is
a business goal for the plan, why not consider a change to plan design to
limit or eliminate plan loans?
To request a copy of “Effective
Communication Begins With Purposeful Plan Design,” e-mail RetirementResearchCouncil@divinvest.com.