10 Attributes of a Retirement-Ready 401(K) Plan

By Robert C. Lawton

As a 401(k) plan sponsor you have no doubt embraced the concepts of retirement readiness. A significant part of helping employees achieve retirement readiness is providing a 401(k) plan with features that guide participants down the path to retirement readiness.

The following 401(k) plan attributes are generally felt to promote employee retirement readiness:

Plan Design

1. Auto-enrollment. Automatic enrollment of all new participants at a default contribution percentage of at least 3%.

2. Auto-escalation. An increase in participant contribution percentages of 1% per year, typically up to a maximum of 10%.

3. Auto re-enrollment. Automatic enrollment each year of any participant who opts out of initial enrollment at their time of hire or who stops contributing during the year.

4. Hardship withdrawal provisions for loans. In an effort to plug leakage, requirement of hardship withdrawal criteria in order to take a participant loan.

Contributions

5. Roth 401(k) availability. Participant ability to elect to make after-tax Roth 401(k) contributions.

6. Extended employer match. An employer match spread over a larger percentage of employee contributions. For example, 25% of the first 12% rather than the standard 50% of the first 6%.

7. Catch-up contributions. For those participants age 50 and older, the opportunity to make additional 401(k) catch-up contributions.

Investments

8. Availability of index funds. For those participants who believe that passive investment is the only way to go.

9. Right number of fund choices. More is not better with regard to fund choice. More is confusing. Most experts feel that the right number of funds is generally around 12 (not including target date fund options).

10. Availability of target date funds. Professionally managed target date funds for those participants who prefer to have someone else manage their account.

How many of these retirement ready features does your 401(k) plan have?

About the Author:

Robert C. Lawton is president of Lawton Retirement Plan Consultants, LLC a Registered Investment Advisory firm. Reprinted from Employee Benefit News

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