The cost of sponsoring a qualified cost-effective retirement plan can be intimidating for an organization. Not having one available makes it difficult to compete for talent and retain employees once your organization reaches a certain size. Administrating a plan can also be stressful and overwhelming when just starting out. Here are four ways to run a cost-effective retirement plan smoothly.

1. Use Automatic Features

Among the most effective and inexpensive steps any organization can take is adding automatic features to its plan to simplify the experience for both employer and participant. For example, automatic enrollment adds employees to the plan by default, usually after they reach a certain amount of service time. This tends to dramatically boost participation, which is to your advantage from a cost and compliance perspective.

Also consider automatic contribution escalation. This feature gradually increases participants’ contribution rates over time, helping them save more without seeing a big hit on their paychecks.

2. Match Prudently

Agreeing to match each participant’s salary-deferred contribution can serve as a major enticement in hiring and plan enrollment. But your organization doesn’t need to make huge contributions to make a difference. Even a 2% or 3% match can encourage employees to participate in your plan. Plus, it signals that you’re willing to invest in your staff’s future financial security.

What’s more, employers may set up their plans so that participants must contribute more of their own money to receive the full match. For instance, rather than matching 100% of the first 3% an employee contributes, you might match 50% of the first 6%. This approach would cost your organization the same amount but encourage higher savings rates among participants.

3. Right-Size Investment Options

“The more, the better” may seem like a good philosophy when offering plan participants various investment options. However, particularly for small to midsize employers, this approach can backfire when employees feel overwhelmed and dissatisfied with the plan.

You may be better off providing a smaller, carefully curated set of investment choices. Target-date funds are an especially popular choice. This will likely help participants feel more confident in their investment decisions and more engaged with the plan.

Another benefit of a right-sized approach is that you’ll likely reduce your fiduciary risk as plan sponsor. With fewer funds to deal with, and well-chosen ones at that, you should be able to better monitor performance, fees, and suitability for your workforce. In turn, this will make it easier to fulfill your plan administration responsibilities.

4. Offer Financial Education

Sponsoring a qualified plan alone may not be enough. Many employers find they also need to educate employees about financial wellness so they know how to manage their retirement funds. Consider approaches such as:

• Hosting educational seminars (live or virtual) on various topics
• Providing access to online tools or apps
• Holding Q&A sessions with a rep from your plan provider

 
In addition, be sure to recap your plan’s positive features during open enrollment and issue regular reminders about the importance of participants actively managing their accounts. It can all add up to stronger plan participation and satisfaction.

Why It Matters

There are valid reasons why a qualified cost-effective retirement plan has become such a common employer-sponsored fringe benefit. Employees who feel financially secure are generally more focused and less stressed about the future.

Meanwhile, your organization can enjoy competitive advantages in hiring and retention. It may also benefit from tax deductions for contributions and even potentially qualify for tax credits that help offset administrative costs. Contact us for assistance exploring ways to strengthen your plan’s effectiveness without overspending.