Here at Summit, we work with close to 200 different Plan Sponsors of 401(k) plans. We often hear that the plan participation is too low, and Plan Sponsors struggle to increase those numbers. Communication about the plan can often help combat this challenge. With the recent COVID-19 pandemic, many employees are taking a new look at their non-medical benefits. Stories about problems with Social Security are also causing fears about retirement savings. Here are three areas to discuss with your employees to help them better understand the 401(k) plan benefit offered by your Company.
- Company sponsored 401(k) plans often have built in controls, such as segregation of duties. Assets are most often held by large financial institutions with built in controls to ensure the funds are handled appropriately, valued daily, and reconciled on a regular basis. Authorization controls are tested periodically to ensure limited appropriateness. In addition, ERISA requires fiduciary oversight by the Plan Sponsor over the plan. All of these controls provide protection over individual savings accounts that might not otherwise be present in personal savings accounts.
- 401(k) plans are required to offer a diversified investment portfolio. There are built-in, varying options available, and most large service providers offer educational materials to help participants make selections among the investment options. Many plans now offer target date retirement funds which are focused on an investment strategy, and risk tolerance based upon the participant’s anticipated retirement date. This eases the enrollment process and removes some of the fear associated with trying to understand complicated investment options.
- Once an employee signs up to defer to a retirement plan, they are on their way to savings for retirement. The funds are removed automatically during the payroll process. Employees adjust to the new payroll amount (i.e. they learn to not miss the money that they are not receiving in their paycheck that is going to their 401(k) account), and after a lifetime of savings, company matched funds (as the Plan Sponsor you are offering a company match or profit share, right?), and investment gains the employee has funds to allow them to retire. These funds help supplement Social Security income and provide for a lifestyle in retirement that would otherwise not be possible.
Stressing the need to plan now for the future especially with younger employees is the key to increasing plan participation. Providing communication and education can greatly help with this process.
Retirement plans can be very complex. As an innovative firm, Summit CPA specializes in 401(k) audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.