Outcomes

Top 401k Trends in 2023

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As 2023 continues to unfold, shifts in the 401k landscape are redefining how we plan for retirement. Today, we delve into the top 4 trends that are shaping fiduciary governance for 401k Trends in 2023: Retirement Income Solutions, SECURE Act 2.0 updates, Fallout from the Supreme Court ruling in Hughes v. Northwestern, and the rising importance of data privacy.

1. Retirement Income Solutions:

Guaranteed income solutions are gaining traction as participants seek the comfort of predictable payouts in their golden years. Employers are increasingly integrating these solutions into their 401k plans, leveraging innovative annuity products and bond ladders. The trend recognizes that a secure retirement isn’t just about accumulating wealth; it’s about ensuring that wealth translates into a stable income. However, with the rise of such solutions, plan fiduciaries must consider the added complexity and work to ensure these options are in the best interest of the participants.

2. Secure Act 2.0 Updates:

 The Secure Act 2.0 was signed into law in December 2022 and includes several updates that plan sponsors should be aware of. One of the most significant updates is the increase in the age for required minimum distributions (RMDs) from 72 to 73 starting on January 1, 2023, and then further to 75 starting on January 1, 2033. It is important to note that recordkeepers must make changs to their systems to accommodate these new regulations.

3. Active Funds: Are They Worth the Premium?

Despite the trend towards low-cost passive funds, active funds maintain a substantial presence in 401k plans. These funds, characterized by hands-on management and potentially higher returns, often come with higher fees. As fiduciaries, it’s essential to scrutinize these options thoroughly. Are the potential returns justifying the cost? Regularly benchmarking fund performance and fees is crucial to ensure participants are receiving value for the fees they are paying.  It is also important to note that all investments must be appropriate for the plan’s participants, as determined by the recent Northwestern Supreme Court case. 

4. Data Sharing and Participant Privacy:

As digital transformations permeate the financial sector, participant data privacy is paramount. Increased data sharing between plan administrators, payroll providers, and third-party service providers can enhance the participant experience. But it also necessitates robust safeguards to protect sensitive information. Fiduciaries must ensure data privacy policies are in place and enforced. In 2023, striking a balance between personalized services and data security is a challenge that every plan sponsor needs to meet.

In conclusion, 2023 is proving to be a dynamic year for 401k plans. These 401k trends in 2023 underscore the need for fiduciaries to stay informed and adaptable, continually working to ensure plans meet the evolving needs of their participants while protecting their interests. Staying ahead of these developments is key to providing a retirement plan that is not just compliant, but also helps provide better outcomes for your employees. 

401k Trends for 2022

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As we head into the fall and prepare for the 2022 plan year, here is a list of our 4 top retirement plan trends that we are implementing with our clients.

1. Inflation

Over the past several months, we have seen an increase in inflation in many sectors of the economy. While the Federal Reserve has said that the inflation we are experiencing now is temporary, there is no hiding the fact that we are near a 40 year low in interest rates.

Bonds are typically held in a portfolio with the goal to reduce volatility and provide a baseline income level in a proper asset allocation strategy. However, bond prices move in an adverse relationship to their yield. As a result, bond prices go down as yields rise, resulting in potential losses in an investor’s portfolio.

Not all Bonds have the same sensitivity to rising rates

There are many reasons why bond yields may rise, but not all bond prices will react the same to a rise in interest rates. Some bonds, such as inflation-indexed bonds, will increase their coupon rate as inflation rises, reducing pressure on the bond’s price to go down. Traditional bonds typically used in retirement plans tend to be more sensitive to rising rates, such as intermediate corporate bonds.

What you can do to help your participants

We have been adding in additional exposure to our lineups that include less traditional bond funds for some time. Funds such as inflation-protected and multi-sector bond funds may offer your participants flexibility to adapt to rising rates.

2. Taking Control of Plan Data

This year there have been several high-profile data breaches in the news. As more and more of your plan data gets placed online, Plan sponsors need to be aware of their exposure to potential data breach liability through internal systems and vendors.

In February of this year, the Government Accountability Office (GAO) recommended that the DOL formally state whether it is a fiduciary’s responsibility to mitigate cybersecurity risks in DC plans and establish minimum expectations for addressing cybersecurity risks in DC plans.

For its part, the DOL Addressed the second part of the request by releasing three pieces of guidance relating to best practices concerning: Hiring a Service Provider, Cybersecurity, and Online Security tips.

Plan Sponsors in their role as fiduciaries should begin to adopt cybersecurity best practices in anticipation of the DOL guidance that may make a failure to secure participant data a fiduciary breach.

Participant data may be a liability even if it is not "stolen"

We have seen a rising number of court filings and lawsuits alleging that service providers that utilize plan and participant data to sell other products are doing so in breach of fiduciary duty. In most cases, including the high-profile NYU case, the plaintiffs typically claim that recordkeepers were using their access to participant demographic data to sell lucrative financial instruments without compensating the plan for that use. To date, we have not seen any of these allegations be successful. However, not all the lawsuits in question have worked their way through the appeals process.

Plan Sponsors would be wise to take heed and start asking better questions of their service providers and their use of participant data to sell ancillary products to their participants.

3. Personalized Education and Advice

When used correctly by the plan, Participant data can be a valuable tool to identify and communicate with plan participants actions and advice independent of the services available from their recordkeeper.

Plans of all sizes utilize participant data to identify underperforming demographic cohorts to customize advice at scale in their retirement plans. Some of the programs we are seeing plan data participant data include:

  • Financial Wellness Programs
  • Financial Coaching
  • Managed Accounts/Personalized recommendations
  • Plan Health Reports

As discussed earlier, it is vital to have a formal plan whenever sharing participant data and ensuring that the data is used in the best interest of plan participants. However, as software and third-party services become more sophisticated and available, it may make sense to use participant data beyond the off-the-shelf services provided by some recordkeepers.

4. Missing and Low Balance Participants

Missing participants continues to be a topic of emphasis for IRS, DOL, and EBSA regulators. The primary duty of any fiduciary is to provide benefits to plan participants when due. Integral to that responsibility is for plan sponsors to know whom they owe benefits to and how to reach them for communicating vital Plan information.

Before 2014 the IRS had a program that you could use to forward mail to missing participants. However, since that program has terminated, there is no easy solution to finding missing participants. The DOL has issued guidance in January providing best practices for Plan Fiduciaries, including:

  • Maintaining accurate census information for the plan’s participant population
  • Implementing effective communication strategies
  • Missing participant searches
  • Documenting procedures and actions

Examples of participant searches include:

  • Checking related Plan and employer records
  • Checking with designated Plan beneficiaries
  • Using free online searches
  • Using a commercial locator service
  • USPS certified mail features
  • Death and social security searches
  • Reaching out to colleagues who worked with the person in the past.

Use force-out provision to remove low balance participants annually

One way to reduce your burden on locating missing participants is to regularly force out terminated participants with low balances while you are still in contact with them. Most plan documents have a provision that allows them to force out low-balance participants through a systematic process if their balance is below $5,000.

Most recordkeepers can automatically force out low-balance participants regularly through an automatic IRA provider and are more than happy to do that. However, we have found that few plans that come to us are taking advantage of this service. If your provider does offer this service, sign up or consider using one of the third-party providers who can provide that service free of charge.

If your provider doesn’t have a solid process for finding missing participants or forcing out low-balance participants, there are several third-party providers that we have worked with who can do a great job.

Remember to keep good documentation when forcing low-balance participants out of the plan. Often, the participant can easily miss the required notices alerting them to the forced-out distribution. As a result, the participant may be unaware that the plan transferred their account. Your responsibility is to keep a copy of any communications sent in their employee file or other safe location that can easily be referenced years into the future.

Conclusion

If you’d like to talk about any of these trends for your plan, please call us today.

 

This information is not intended as authoritative guidance or tax or legal advice.  You should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information, plan sponsor will be in compliance with ERISA regulations. 

Could Financial Coaching Work for Your Workforce?

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It’s 9 a.m. and Janine (your employee) turns on her workstation computer to start her workday, yet the first phone call she takes is from a debt collector, and the first site she logs onto is her bank to see if she has overdrawn her checking account.

While this example is only an illustration, “Janine” has many real-world counterparts who devote work hours to money-related stressors.

Workers of all levels of education and income have financial problems.

Financial stress impacts workers’ lives personally and professionally. About 80 percent of employees who report significant financial stress say that they’re distracted by stress at work.[1]

Financially stressed employees can stress your company’s bottom line. According to a John Hancock Financial Stress Survey, employees stressed over finances cost their employers about $2k per employee.

If you are the CEO, HR manager, or a decision-maker in your company, a quick way to solve this would be to increase employees’ earnings and make their paychecks go further.

Unfortunately, with the current economic environment, very few businesses can afford to increase payroll.

A better option may be to offer financial coaching as a voluntary benefit, assisting employees to get more out of their paychecks and, effectively, giving them raises without increasing payroll by a cent.

Financial coaching could be the missing piece to your financial wellness programs. Access to financial wellness and education programs is steadily increasing, with over two-thirds of small to mega plans offering some form of program to help their employees manage their day-to-day finances[2]. However, research shows us that there is still more work to do.

What Is Financial Coaching?

Financial coaching focuses on a combination of intuitive technology and advisor led coaching with employees towards incrementally improving the financial position of your employees.  Offered as a voluntary benefit, financial coaching sends employees a valuable message. It lets them know their employer cares about them and is prepared to extend a helping hand to those in need.

‍Employees often need support and encouragement to adhere to positive financial behaviors. By covering areas like debt reduction, credit building and budget counseling, employees may be able to:

  • Save more and spend less
  • Build an emergency fund
  • Pay off consumer debts and student loans
  • Prepare for vacations and holidays
  • Contribute to an investment plan

For financial coaching to be successful, it needs to do more than just provide education. Coaching should result in your employees taking appropriate actions that lead to financial success.

Why Offer Financial Coaching?

Financial coaching for your employees isn’t just the right thing to do; it makes good business sense.

You may benefit from a more focused, engaged, and productive workforce when employees aren’t distracted by financial worries.

According to the 2019  Employer Guide to Financial Wellness by SalaryFinance.com, financially stable employees can complete daily tasks 6 times faster than financially stressed employees.

Improving your employees’ financial wellness can lead to lower turnover rates and reduced absenteeism while increasing employee satisfaction and improving your brand.

Covid-19

Americans are dealing with high levels of financial stress, and Covid is partly to blame.

Covid has turned the lives of many people upside down. Employers have started recognizing the value of adding financial coaching to their employee benefits packages.

They not only do this to attract and retain the best talent but also to support their employees in attaining their personal goals, in effect, turning them into loyal, long-term staff members.

Financial Lives are More Complex

35 percent of Americans report losing sleep to financial stress. One-quarter of the 35 percent of Americans losing sleep experience symptoms such as broken sleep, insomnia and fatigue on waking. [3]

There are a lot of health factors that can affect employee workforce productivity, which is why implementing financial coaching into your HR strategy can help.

Financial coaching can help employees find balance and control over their finances, now and in the future. But financial education alone is not going to change financial behaviors.

You need a solution that goes beyond static education. You must change your behavior in order to improve your financial health.

 

Americans have a financial literacy problem

It’s no secret that Americans struggle with their personal finances. But there’s a solution to every problem, and in this case, it may be financial coaching.

According to a study by Enrich, employees who participate in their financial wellness programs show positive financial behaviour changes.

  • 10 percent contributed enough to the 401(k) to get the employer match
  • 15 percent contributed to their retirement plan
  • 27 percent created an emergency fund with 3-6 months of saving
  • 28 percent pay off their credit card balance each month
  • 32 percent feel they’re on track with their financial goals

As you see, financial coaching will empower your employees with insight and accountability towards permanently improving their financial health and mindset.

Meeting Your Employees Where They Are

To keep up with today’s interconnected world and better serve their clients, more and more financial coaches are leveraging technology.

Technology has significantly impacted financial coaching. It’s an easy way for financial coaches to meet the evolving needs of their clients and develop deeper relationships with them. It’s now possible to move employees along at their pace and then be available for consultation as needed.

An integrated platform creates a clearer path for goals-based planning and allows for more collaboration with plan participants.

Maximizing ROI

  • Financial coaching is an inexpensive benefit

As an employer, you are already investing in your employees.  Incremental costs associated with a robust technology platform coupled with one-on-one coaching consultations could cost less than $100 per employee annually[4], which makes coaching one of the least expensive benefits you could offer your employees.

  • Trackable and reportable at the employer level

To help you recognize what troubles your employees are facing and the progress they are making, a financial coach will provide aggregated reports.

These insights serve as means that strives to keep your employees focused on work by minimizing their stress and the basis for future conversations about maximizing involvement in your company’s benefits.

  • Getting employees to retire on time reduces health care costs over time

Many surveys show that finances are the leading cause of stress for working Americans.

While increased heart rates and sweaty palms might be symptoms of situational stress, the effects of chronic stress range from increased fatigue to heightened irritability and inability to concentrate.

A financial coach can help your workforce work towards getting their finances in order and retire early. The sooner your employees retire, the more time they’ll have to check items off their retirement bucket list.  

 

Choosing the Right Provider

There are a lot of providers in the marketplace and more are entering every day. This means that you have a lot of choices in who you partner with for your coaching needs. 

Some providers of financial coaching are offering technology programs and access free of charge.  However, we have found that those platforms are mostly offered by financial services companies that want to sell potentially high cost loans and investment products that may or may not be in your employee’s best interests. 

A true partner should be transparent with how they are paid and independent in their delivery.   An independent advisor may have higher upfront costs but may be better for your employees in the long run. 

Schedule a Call

At Retirement Impact, we’re in the business of changing financial lives.

Our approach to financial coaching focuses on engaging employees with a focus on guiding them towards action.

The goal is to help employees attain their objectives for every stage of their financial lives, whether it’s eliminating debt, saving for a car, buying a home or creating a safer retirement. Schedule a call today to see if coaching can be a complement to your financial wellness program.

[1] Source: Financial Health Network: https://finhealthnetwork.org/research/workplace-financial-health//  Accessed August 2, 2021

[2] Source: Morningstar.com https://www.morningstar.com/news/business-wire/20210623005172/cogent-syndicated-plan-sponsors-use-of-financial-wellness-offerings-reaches-historical-high . accessed July 6, 2021

[3] Source: American Psychological Association, “Stress in America, 2020”, https://www.apa.org/news/press/releases/stress/2020/report-october, Accessed August 2, 2021

[4] Source: https://www.financialeducatorscouncil.org/financial-wellness-providers/, National Financial Educators Council, accessed on 7/21/2021.

Motivating Savings with Financial Wellness and Plan Design

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Resolution season is upon us. January through March are the peak motivation months.  That special time of the year when people are eager to make positive strides toward physical, financial, professional, or personal goals.  On average, 42% of Americans make money-related resolutions.  However, in less than 6 months, half of the once dedicated forget about their goals.[1] But, as we all know, it takes longer than 6 months to reach a meaningful savings goal.

So, how can you, as a plan sponsor, use the resolution momentum to inspire your employees to save for retirement? This article we will discuss holistic ways to promote financial wellness among your employees as well as plan design tips aimed at increasing participation and savings rates.

Employee Savings Goals

We’ve all heard the saying, “if you don’t know where you’re going, any road will get you there.” However, without a financial goal, many are left unprepared and money has a way of slipping away when there is no clear savings path.

As a retirement plan advisor, my job would be so much easier if every one of your employees were focused on saving for retirement; but the reality is, if they are financially stressed, retirement is the last thing on their minds. Depending on the age and financial situation of your workforce, top concerns may range from meeting monthly expenses, to paying off debt or saving for college, to caring for aging parents. It’s important to understand that saving is a journey and even though each of your employees may be in a different spot, however, the act of saving needs to be constant.

TIP: Encourage your employees to maintain an active list of financial goals. This will help them set a savings path and may help you to determine a more focused financial wellness program or specific education topics.

Savings Buckets

The term savings bucket is not new to you as a plan sponsor, as you may have regular conversations with your recordkeeper about them. However, it may be a brand-new concept for your employees. The three-bucket principal is a way of simplifying the art of saving. First you fill bucket #1 and once it is full, savings begin pouring into bucket #2, then it is on to the final bucket. Each bucket holds savings for a specific goal: Bucket #1 is reserved for Emergency Funds; Bucket #2: The Middle Bucket; Bucket #3: Retirement Bucket.

Plan Goals

Beyond the holistic efforts of financial wellness that address the financial hurdles your employees face, there are steps you can take from a plan level that can motivate positive savings habits. Automatic features such as auto-enrollment and auto-escalation are two plan design features that can help you pursue goals of increasing participation and deferral rates.

Auto-enrollment is an excellent plan design feature to help get new hires saving from the get-go. In fact, Vanguard research shows that plans with auto-enrollment boast participation rates reaching 90% whereas plans with voluntary enrollment fall short at 63% participation.[2] You may also consider adding features that enroll #_ftn1#_ftnref2(or backsweep) workers who may not have been previously enrolled in your 401(k) plan.

Participating in the plan is great, but you want your employees to be saving at the highest possible rate. One way to help is by implementing an auto-escalation feature. Consider enrolling (or re-enrolling) employees into the plan at a modest 5% savings rate, then increase the deferral by a set percentage each year until a more meaningful rate is reached.  Optional formulas:

Deferral GOAL Starting Deferral Annual Increase Years to Accomplish
10% 5% 1% 5 years
10% 5% 2% 2.5 years
15% 5% 2% 5 years

Always Moving Forward

Creating a culture for your employees to save begins with a dialog; we are happy to help with that conversation. At Retirement Impact, we feel that employee education and empowerment starts with the plan sponsor. Thus, we aim to provide resources and tools that help you help your employees move toward their savings goals.

[1] Statistic Brain. “New Year’s Resolution Statistics.” Jan. 2017.

[2] Vanguard. “How America Saves.” June 2017.

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation.

What does it really take to retire?

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What does it really take to retire?

As a plan sponsor, your employees rely heavily on your guidance; after all, you manage the plan that may offer their best shot at a successful retirement. When the 401(k) plan was introduced in the mid-80s, it was not intended as a standalone solution. However, as time evolved, defined contribution (DC) plans became the primary savings vehicle for Americans, while originally, they were intended to be a part of a three-pillar system including defined benefit (DB) and social security. Saving for retirement now rests predominately on your employees and they look to you for guidance.

Are you helping position them for success?

It may not come as a surprise that 81% of Americans say they don’t know how much money they’ll need in retirement.[1]  But let’s be honest, most people’s minds begin to drift when you start talking large numbers and percentages. So, let’s break it down in a way that may actually make an impact on your employees!

Average American income = $55,775
Annual Monthly Weekly
$55,775 $4,647 $1,161

source: Department of Numbers. “US Household Income.$55,775” Sept 2016.

Average Retirement account balance = $95,776 ÷ Average years in retirement (18)
Annual Monthly Weekly
$5,320 $443 $110

Source: Morrissey, Monique. “The State of American Retirement.” March 2016.

How much do they really need to retire?

The short answer: many industry experts suggest putting away 10 percent annually or more for a meaningful retirement, but the average deferral rate is only 4%.[1] So where is the disconnect? Often plan sponsors fear push back from employees when it comes to making plan adjustments that may decrease their weekly paychecks. However, surveys reveal that participants look to their employers for nudges to save.[2]

3 tips to encourage more savings

A helpful way to encourage more savings without adding a large cost to the plan is through effective plan design. In a previous article, we discussed six plan design basics to help you build a custom plan. In this article, we challenge you to explore a few advanced plan design features.  You may consider stretching the company match, implementing auto-escalation, or offering a cash balance plan. 

Stretch the match

It’s been long accepted that you should “contribute to the employer match.” As an employer, why not act on this popular belief? If your plan utilizes a typical match formula of dollar for dollar up to 3% of pay, you may consider a stretch option. For example, you could match fifty cents on the dollar up to 6% of pay. This simple scenario would keep employer contributions at 3% of pay; and with the stretched formula, employees would be incentivized to save more.

Auto-escalation

If you were to announce to your employees that their next paycheck would reflect a 10% deferral into their 401k, you may have a small revolt on your hands. And rightly so. 76% of Americans live paycheck to paycheck (including 30% of people who earn more than $100,000 a year)[3]

You may consider a more subtle approach that would enroll your employees at 4% and automatically increase each year by 1% until they reach that a target rate of 10%. Your employees may even thank you. Based on a survey by American Century, seven in ten participants showed interest in a regular, incremental automatic deferral increase.[4]

Cash Balance plan

A cash balance plan may induce a bit of nostalgia from the yesteryears of the traditional pension plan, but with a 401(k)-style twist: they combine the higher benefit limits of a DB plan with some of the flexibility and portability of a 401(k) or profit sharing plan. This unique plan design option may help business owners with a significant tax deduction for employee contributions, plus generous tax-deferred retirement contributions for themselves.

Inspiring Savings

Inspiring your employees to save may seem daunting at times, especially if you fear push back on implementing new strategies. But, a significant point of offering a retirement plan is to help your employees get closer to their retirement goals. Exploring options such as those in this article may help you reach organizational goals such as recruiting and retaining valuable employees while helping them to pursue their goal of a successful retirement.

For information or help in implementing these plan design features, feel free to contact us to setup a conversation.

[1] Age Wave/Merrill Lynch, “Finances in Retirement: New Challenges, New Solutions,” 2017

[2] American Century Investments. “Fourth Annual Plan Participant Study Results.” Aug. 2016

[3] Johnson, Angela. “76% of Americans are living paycheck-to-paycheck.” CNN Money. June 2013.

[4] American Century Investments. “Fourth Annual Plan Participant Study Results.” Aug. 2016.

Customizing Plan Design

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No "One Size Fits All" Plan

Retirement plans come in all shapes and sizes: DC Plans, DB Plans, Non-Qual, 401(k), 403(b), 401(a), 457, SEP IRA, Simple IRA, Roth IRA, Cash Balance, HSA… and any other number letter combinations that you can think of. The simple truth is that there is no one-size-fits-all version of a retirement plan; and as a plan sponsor, you need to select a benefit plan that is appropriate for your company and its participants. It is important to understand the basics of plan design, work with a knowledgeable advisor, and evaluate your plan based upon your specific needs.

While designing your company’s 401k plan, six major elements must be defined: eligibility, compensation, contributions, vesting, distributions and loans.

Eligibility | Who can enter the plan and when?

Pretty simple and first on the list is addressing which employees are able to enter the plan and when they are able to do so. Depending on the demographic and culture of your workforce, you may elect certain eligibility requirements such as age, tenure, or full-time employment status. Plan sponsors may choose to grant immediate eligibility or require a waiting period before new employees are allowed to participate in the plan.

Tip: Auto-Enrollment

Compensation | What part of the paycheck?

Next, you must decide what types of compensation will be used in the plan and how they are taxed. Certain types of compensation may be excluded for plan purposes without issue; these may include: compensation earned prior to plan entry and fringe benefits, even bonus and overtime (if special annual testing is passed)[1].

 

Contributions | Who is putting money into the plan and how?

Your plan may permit both employee and employer contributions. Any employer contributions must be allocated to participant accounts pursuant to a formula in the plan document.

Contributions can be broken into 4 major groups: elective deferrals, employer matching, safe harbor and non-elective (profit sharing) contributions.  Each of these groups has its own unique formulas and feature options that can be applied to help maximize savings. It is important to remember that all money entering the plan is subject to annual limits.[2]

Vesting | When do employer contributions become employee assets?

Participants are only entitled to the vested portion of their account balance upon exiting the plan; the remaining unvested portion must be forfeited to the plan. Sponsors can choose to reallocate these forfeitures to pay plan expenses or reduce employer contributions (e.g., the funds may be used as matching contributions for other employees).

Employee contributions and most safe harbor contributions must always be 100% immediately vested. However, plan sponsors may elect a vesting schedule appropriate to specific company needs for matching and profit sharing contributions.

Broadly speaking, there are two kinds of vesting schedules: graded vesting and cliff vesting. Regardless of schedule, a participant must become 100% vested when they reach “normal retirement age.”

Distributions | When can money be withdrawn?

Distribution is a fancy word the IRS and the financial industry use to discuss withdrawing money from the plan.  Generally, employees are eligible to take penalty-free distributions at age 59½, but it is not until age 70½ that the IRS requires employees to take distributions.

Often, plans will only permit a lump sum distribution when a participant separates from service and is entitled to a distribution. Under the lump sum option, a participant must take their entire vested account balance in a single distribution. Other distribution forms available include installment payments and partial payments.

You can permit a participant to take a distribution while still employed. These are called “in-service” distributions. These distributions must be available upon the attainment of a certain age (59 ½ or greater) or a “hardship” event. Eligible hardship events are defined by law.

A plan may permit the involuntary cash-out of small account balances. Balances under $1,000 may be distributed in cash to the participant. Balances under $5,000 may be involuntarily rolled into an IRA for the benefit of the participant.

Loans | Can employees borrow from their savings?

Retirement loans are popular among employees but often add administrative complexity for plan administrators. Employers may need to sign off on loan requests and deduct loan payments from payrolls. Offering retirement plan loans is not required: as a plan sponsor you have the authority to allow them or not.  

Understanding these 6 key elements can help you to customize a plan unique to your company’s specific needs. Beyond these basics you may even consider implementing advanced plan design options such as auto-features, enhanced matching formulas, or offering a cash balance plan. [We will dive into those options in an upcoming article. Be sure to connect with us on LinkedIn or visit our blog to stay informed.] 

We pride ourselves in being knowledgeable advisors and would be happy to walk through a plan design questionnaire to help develop a plan that is right for you and your employees because in the end, the whole point of your company’s plan is getting everyone successfully to retirement!

[1] Mitte, Ed. “CPE_Compensation.” IRS.gov. Summer 2013.

[2] Internal Revenue Service. “401(k) Plans: Deferrals and matching when compensation exceeds annual limit.“ 2017.

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