What will those progressive plan sponsors who wish to maintain leading edge retirement plans be doing in 2015? Read on below to learn the top five 401(k) plan trends for 2015.
- Stretch that employer match. Everyone is now aware that 12% to 15% in annual 401(k) account additions are required for participants to achieve retirement readiness. A virtually no-cost way for employers to incent participants to contribute more is to stretch their matching contribution formulas. For many years 50% of the first 6% was the most common matching formula. In order to motivate participants to contribute more, leading edge employers have stretched their matching contributions to 25% of the first 12%, for example. Expect this trend to continue as employers look for low cost ways to improve their 401(k) plans. All that is required to make this change is a plan amendment and communication materials.
- Re-enroll everyone every year. Those plans that use auto enrollment, auto escalation and annual re-enrollment into target date funds have plan participation rates in the 90% range. Auto works. Annual re-enrollments into target date funds works too. Participants can opt out of a re-enrollment, but the vast majority do not. As a result, plan participation sky-rockets, rarely falling short of the 90%’s. Just as auto enrollment became commonplace in large plans in recent years, expect annual re-enrollment to become the norm in the next few years.
- Use outcome based, online employee education. Employee education has become more personalized with every participant having his/her own unique retirement goal. Expect to continue to see personalized education migrate to predominately online venues. When participants can view 5 to 7 minute learning videos online at their homes with their spouses, outcomes improve. Most employers embrace this type of learning since participants are not pulled away from their jobs and employee education costs are less.
- Add Roth 401(k) features. A 2014 Towers Watson survey showed that 54% of companies offer participants the ability to make Roth 401(k) plan contributions. Since it is now possible to convert pre-tax 401(k) accounts into Roth 401(k) after-tax accounts, expect many more employers to offer Roth 401(k) contribution ability and an in-plan conversion feature. Again, the cost of this change is a plan amendment and communication materials.
- Employees paying more fees. A 2014 Towers Watson survey indicated that a surprising 58% of plan sponsors pass on the recordkeeping costs of their 401(k) plans to participants. Only 23% of surveyed employers pay the entire recordkeeping cost. As employer cost pressures continue, expect more employers to pass on all plan related costs to participants.
As you construct your performance plan for the year, consider how these retirement plan trends may impact your initiatives.
