401(k) Specialist Issue 3 - 2019 - 40

401(k) PLAN DESIGN
You Have Plan Design Silver Bullets.
Are You Using Them?
By Jerry Patterson
IT WAS A WARM and sunny morning in
Dallas. We were there to attend a committee
meeting with an important client
and a team of advisors from a well-known
national consulting practice.
This was one of those dream committee
meetings we all love-and wished all the
others went the same way. All three parties
at the meeting (advisor, recordkeeper
and plan sponsor) respected each other,
enjoyed working together, and had worked
hard as a team to get the client's defined
contribution plan to its current state.
The client had been focused on driving
positive employee outcomes for years-with
a laser-focus on leveraging best-practice
plan design features and techniques. The
advisor team had been there consulting with
the client every step of the way, and we (the
recordkeeper) were there to help support the
necessary administrative, operational and
educational changes and needs.
All the effort paid off. Today, the plan enjoys
a 96% participation rate and an average
deferral rate of 8.98%. Participants also
enjoy diversification as a large percentage
of plan assets are diversified funds.
Don't Lose Sight of Core Mission
Feels like a " happily ever after " ending?
Well, frankly, it is-and we believe it should
be the same exact case with almost all
plans these days. Period.
So why doesn't every defined contribution
plan look like this one? Inertia, distraction
and fear of disruption.
With retirement planning, it's easy to get
distracted by the latest buzz around things
like financial wellness, account aggregators,
health savings accounts, student
loan debt, budgeting, holistic planning,
managed accounts, retirement income and
40
ISSUE 3 2019 | 401kSpecialist.com
Participation rates above 90% and deferral
rates above 8% are very achievable.
Yes, we truly have a silver bullet by applying
these plan features.
open multiple-employer plans (MEPs).
While all these things are relevant and
topical as we think about retirement planning
more holistically, they can sometimes cause
us to lose sight of the core mission-building
a defined contribution plan that rocks!
In a world with more than 200 million
Google searches per hour and 140 million
hours of Netflix streamed each day, we
can get distracted. It's sometimes hard to
focus or refocus on the core plan. We also
sometimes hesitate to push plan design
changes because we (or the plan sponsor)
are concerned about administrative or
participant disruption.
Use the Tools
For participants, there is no more powerful
strategy than to save more, earlier. For
plan sponsors, there is no more powerful
way to get them there than to leverage features
like automatic enrollment, adequate
starting default savings rates (6% or higher),
automatic-escalation, a " stretch-match
formula, " annual sweeps, limited or no
loans, and a Qualified Default Investment
Alternative (QDIA).
While implementing changes to plan
design can pressure matching costs and
might disrupt some employees, we've
found this feared disruption to land somewhere
between minimal and non-existent
in practice.
The impact on a match budget is a
financial decision that can be managed.
All the features above can be implemented
with no additional cost-or in cases
where a plan sponsor wants to manage
cost increases over time, changes can be
made incrementally. Most changes can be
made with small to modest administrative
impacts and we have yet to see large-scale
employee picketing or protests triggered by
plan design changes.
Relative to plans we service, we see only
9% of participants opt out1
start saving right away! Those are lives being
changed for the better because of plan
design that puts people at the center.
1
Percentage of participants who opt out of automatic
enrollment, as of May 1, 2019
Jerry Patterson is senior vice president of retirement
and income solutions with Principal Financial
Group. Patterson is a champion for retirement
savings and what it takes to get individuals to
reach their retirement goals. The subject matter
in this communication is provided with the
understanding that Principal is not rendering
legal, accounting or tax advice. You should consult
with appropriate counsel or other advisors on
all matters pertaining to legal, tax or accounting
obligations and requirements.
. That means 91%
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401(k) Specialist Issue 3 - 2019

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