6 May 2024

5 Ways Advisors Can Help Employers Improve 401(k) Plans

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One possible strategy financial advisors specializing in employee benefits distinguish themselves from a crowded field of competitors is to urge prospective employer-clients to adopt 5 recommendations highlighted in a new report from the Transamerica Center for Retirement Studies. The TCRS survey, “The Retirement Readiness Challenge: Five Ways Employers Can Improve Their 401(k)s,” is the latest in a series of reports that Transamerica has conducted of business employers and workers regarding their attitudes toward retirement. Among the report’s recommendations for employers:

1. Adopt automatic plan features to increase savings rates 

All of the Principal Financial 10 best companies offer and fund 401(k) or 403(b) plans as well as profit-sharing programs. The report shows that the percentage of plan sponsors offering automatic enrollment increased to 29 percent in 2014 from 23 percent in 2007. Plan sponsors’ adoption of automatic enrollment is most prevalent in large companies. Fifty-five percent of large companies offer automatic enrollment. 

Among plan sponsors with automatic enrollment, 34 percent automatically increase participants’ contributions annually with no action required by participants.

2. Consider professionally managed services and asset allocation suites 

The report shows that 84 percent of plan sponsors now offer managed account service and/or asset allocation suite, including:

  • 56 percent offer target date funds that change allocation percentages for participants as they approach their target retirement year;
  • 54 percent offer target risk funds that address participants’ risk tolerance profiles; and
  • 64 percent offer an account (or service) that is managed by a professional investment advisor who makes investment or allocation decisions on their behalf.

3. Add the Roth 401(k) option to facilitate after-tax contributions 

The report reveals that plan sponsors’ offering the Roth feature has increased to 52 percent in 2014 from 19 percent in 2007. Very small (50 percent) and large (49 percent) companies are similarly likely to offer this feature. This compares to 63 percent of small non-micro companies, which are somewhat more likely to do so.

4. Extend eligibility to part-time workers to help expand retirement plan coverages 

Nearly 8 in 10 employers (79 percent) offer a 401(k) or similar plan to their employees, including: 98 percent of large employers, 95 percent of small non-micro employers, and 73 percent of micro employers.

  • Only 49 percent of 401(k) or similar plan sponsors say they extend eligibility to part-time workers to save in their plan.
  • Large employers (80 percent) are more likely to extend eligibility to part-time workers.
  • This compares to compares to a bare majority of small non-micro companies (52 percent) and micro companies (39 percent).

Among plan sponsors not extending eligibility to part-time employees, 90 percent do not plan to do so in the future and their most frequently cited reasons include: generally impractical, concerns about cost, and employees not interested in.

5. Address communication gaps between employers and workers 

The survey findings reveal “major disconnects” between employers and workers which, if addressed, could help employers maximize the value of their benefits offering while also helping their employees achieve retirement readiness.

Nearly all of employers that offer a 401(k) or similar plan agree that their employees are satisfied with the plan, including 63 percent that “strongly agree” and 32 percent that “somewhat agree.” In contrast, only 80 percent of workers who are offered such a plan agree that they are satisfied with their employers’ plans, including 27 percent who “strongly agree” and 53 percent who “somewhat agree.”

Click here to access the full article on LifeHealthPro.

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