Retail employer plans can be the hardest cases for advisors, with relatively low-paid employees who are not sophisticated about investing or retirement planning. In addition, plan sponsors in the retail sector typically operate on a tight budget. In a case study prepared by the Retirement Advisor Council (an industry collaborative effort), a hypothetical restaurant chain is reviewed, with interesting suggestions on ways to make simple yet dramatic improvements without increasing the employer’s benefit budget.
With a 50% participation rate as well as low account balances and deferral rates, less than 10% of participants were confident about their ability to retire comfortably. The company had a fixed budget using a 50% match up to 4%. Without increasing the benefit budget, the plan was dramatically improved through auto-enrollment, with a deferral starting at 5% and automatically increasing 1% a year up to 10%.
The match was changed to 20% up to 10% of pay (the original match of 50% up to 4% of pay had inadvertently led many participants to think that 4% was the “suggested” contribution level, and they limited their contributions accordingly), helping the plan sponsor control costs. Multiple loans werehttps://www.napa-net.org/news/plan-optimization/how-do-we-solve-the-plan... were eliminated as well. The result? Confidence soared as a result of increased participation and deferral rates.
Seems too simple? What’s bad about simple?
