Wondering whether your plan design is still market competitive? A
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- Immediate eligibility to make employee deferral contributions with a one-year wait period to receive employer matching contributions;
- Automatic enrollment at an employee deferral contribution rate of between 3% and 6% and automatic employee deferral escalation of 1% each year up to a maximum 10% deferral rate;
- A stretched matching contribution to encourage higher employee deferrals (e.g.; 25% of 12% rather than 50% of 6%) of at least 3% to 6%;
- A Roth 401(k) deferral option;
- No plan loan option or a restriction on plan loans to hardship criteria;
- A reasonable number of investment options (e.g.; 12 to 15 excluding target date);
- A professionally managed investment option usually
target-date funds ;
- Has elected a QDIA and re-enrolls all employees into it periodically.
A progressive plan design supports plan objectives which the plan sponsor regularly communicates. Other best practices include:
- Employer profit sharing contributions are less valuable in terms of motivating participants to contribute than employer matching contributions. If possible, replace employer profit sharing contributions with employer matching contributions.
Participant loans , a significant form of account balance leakage, should be discouraged by using the strongest plan design feature your corporate culture will accommodate.
- Many larger plan sponsors re-enroll all participants in the QDIA option (usually target-date funds) every year. This practice increases plan participation while ensuring that participants are invested appropriately for their age.
How many of these plan design features does your plan have?
Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC (
