Change is in the air, and toward attracting and retaining employees, plan sponsors are busily expanding traditional company retirement plans to include financial advice, emergency savings, loan repayment and more. Read on for ideas about the 401k of the future.
Total Financial Wellness
That’s the new goal post for what has been previously thought of as simply offering a company sponsored retirement account. Toward total financial wellness, more and more employers are focused on ways to address student loan debt, offer tiered and personalized investment options for the 401k and access to reasonably priced financial advice. Emergency savings, made easier to administer via SECURE 2.0, as well as Health Savings Accounts (HSAs) are also very much on the radar as plan sponsors steer into the future. Forecasting retirement plan trends, experts at Plan Sponsor also anticipate:
Increased personalization when it comes to plan design and the investment menu, in particular the concept of the tiered investment structure. This is when investments are organized into multiple tiers, and each tier represents a subset of investments from which a participant can choose. For example, one tier could be a target-date fund for participants who do not want to self-direct investments, while a different tier could be a brokerage window for participants who prefer specialized fund choices beyond the core investment menu. The goal of such a system is to maximize participant engagement by communicating the desired investment options to targeted groups of participants.
To make it a no-brainer for employees to take advantage of company sponsored plans, employers have been steadily increasing the use of both automatic enrollment and automatic escalation in recent years. As data continues to point to the success of automatic enrollment, even more plan sponsors are expected to adopt approaches that facilitate saving at incrementally increasing levels over the next year. All in, taking a bird’s eye view of all the changes in progress, some retirement industry experts are quite optimistic about 401k plans in 2024 and offer these highlights:
We’re seeing the continuation of these very good trends: higher participation rates, higher savings rates, higher rates of participants investing in a target-date fund that gets them proper asset allocation [and] lower rates of exchanges and trades so people aren’t panicking and moving between asset classes. …
The concept of retirement savings has broadened over the last year beyond just contributing to a retirement account. Plan sponsors are increasingly including financial wellness advice and offering non-retirement benefits such as emergency savings and student loan repayments as part of their overall packages.
Plan Sponsor To Do List
While aiming to strengthen the company plan–and engagement in it—plan sponsors are reminded that many SECURE 2.0 provisions, both mandatory and voluntary, take effect in 2024, including:
- the end of required minimum distributions for participants in Roth 401(k)s;
- the option for plan sponsors to offer matching 401(k) contributions for those making qualified student loan payments, as well as two types of; and,
- emergency savings accounts.
National risk management expert, Richard Clarke shares a further breakdown of key provisions in SECURE 2.0 which plan sponsors will find helpful as they work to comply, and reminds us: “Those who proactively get ahead of the game’s new rules will be best positioned to serve the needs of their companies, as well as current and former plan participants, while also protecting themselves against liability.”
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