A Fiduciary's Guide to Modern Retirement Plan Design

Many workers across the country lie awake at night wondering if they'll have enough money to retire. As a Plan Sponsor, you carry fiduciary responsibilities to act prudently and in the best interests of plan participants when overseeing the plan. However, getting participants to enroll and save adequately requires more than just offering a basic plan.

Retirement planning has shifted dramatically over the past few decades. By understanding these changes, you can design a retirement plan that better serves your workforce. This guide explores the specific challenges employees face, how recent legislation helps, and the actionable steps you can take to improve your company's plan. Watch a recent webinar on the topic here.

Why Employees Struggle to Save

Even when employees enroll in a retirement plan, they often set their contributions on autopilot and forget about them. Life rarely moves in a straight line, and workers constantly face competing financial pressures. Many carry student debt for long periods or find themselves in the "sandwich generation," supporting both young children and aging parents simultaneously.

Employees have access to more financial information than any previous generation. Yet, having endless choices doesn't equal clarity. When workers feel uncertain or intimidated by complex investment options, they often disengage. Instead of asking technical questions about fund performance, most employees are simply asking a deeply human question: "Am I doing enough right now?"

Legislative Push: SECURE Act Changes

Recent legislation recognizes these struggles and aims to help employers support their teams. The SECURE Act of 2019 focused on giving more people access to workplace retirement plans. SECURE 2.0, passed in 2022, took things a step further by focusing on helping people to save over time.

SECURE 2.0 requires new retirement plans to include automatic enrollment and automatic escalation. While neither feature is new, making them mandatory has encouraged existing Plan Sponsors to adopt them as industry best practices.

Additionally, the rules around Qualified Default Investment Alternatives (QDIAs) have evolved. Years ago, fiduciaries placed default investments in overly conservative money market funds to avoid losses. Now, the Department of Labor provides safe harbor for balanced funds, target date funds, and managed accounts. This shift is intended to help participants default into more growth-oriented long-term investment options, depending on the plan’s design and fiduciary review process.

Actionable Steps for Plan Sponsors

You don't need a one-size-fits-all approach to improve your retirement plan. Start by having a conversation with your Plan Advisor about what you currently offer and what you could do better.

Choose Your Implementation Approach

Plan Sponsors generally take one of two approaches when upgrading their plan design:

• The comprehensive approach: You can rip the bandage off and add automatic enrollment, automatic escalation, and possibly a full plan re-enrollment all at once. This approach can accelerate adoption across the plan, but it may require more effort up front and a robust communication plan to ensure employees understand the changes.
• The phased approach: Alternatively, you can start with adding automatic enrollment and escalation for new hires only. Over time, monitor participation rates and employee feedback. If results are positive, you might expand these features to current employees through a re-enrollment or gradually introduce other enhancements.

Monitor and Measure Progress

After implementing changes, review participation rates, average deferral rates, and plan balances annually. Work with your recordkeeper and advisors to evaluate what’s working and where adjustments are needed. Make sure to keep communicating with employees so they understand their options and the benefits of staying engaged with their retirement plan.

Conclusion

Modernizing your retirement plan can be an important step for supporting both employee financial security and your organization’s business objectives. By staying current with plan design and legislative updates, you can better meet the needs of your workforce and may help strengthen your company’s future.

For help with your retirement plan, contact us to discuss your current plan design and the options that may be appropriate for your organization.

This article is for general educational/informational purposes only and is not legal, tax, or investment advice.