Making a Good 401(k) Plan Even Better (Credit Union Conference Presentation)
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Transcript of Making a Good 401(k) Plan Even Better (Credit Union Conference Presentation)
National Association of Federal Credit Unions l www.nafcu.org
Presented by:
Richard W. Rausser, CPC
Vice President
Pentegra Retirement Services
MAKING A GOOD 401(k) PLAN EVEN
BETTER
National Association of Federal Credit Unions l www.nafcu.org
• Retirement plans represent a large expense
that credit unions incur to attract, retain,
and motivate employees
Your Retirement Plan Is An Important
Factor In Your Credit Union’s Success
National Association of Federal Credit Unions l www.nafcu.org
• Define what you want to accomplish with your
plan
• Ensure that your plan design aligns with your
corporate benefits strategy
Make Your 401(k) Plan Work Harder For You
National Association of Federal Credit Unions l www.nafcu.org
• Consider these factors:
Participant demographics
Maturity of credit union
Competitive considerations
Benefits philosophy
Compensation strategy and budget
Overall cost and benefit objectives “cost
vs. adequacy”
Aligning Your 401(k) Program With Your
Corporate Benefits Strategy
National Association of Federal Credit Unions l www.nafcu.org
• Begin by benchmarking specific plan features
• Evaluate each feature in terms of how it
compares to:
Industry standards
Your competitors
Measuring The Effectiveness Of Your 401(k) Program
National Association of Federal Credit Unions l www.nafcu.org
Eligibility
• Employers are making it easier than ever for
employees to participate in 401(k) plans
• Relaxed eligibility and enrollment
requirements
National Association of Federal Credit Unions l www.nafcu.org
Salary Deferral Rates
• Are participants maximizing deferral rates?
• What are your highly compensated employees
able to defer?
• Are participants using the plan effectively to
meet their retirement goals and achieve
financial security?
National Association of Federal Credit Unions l www.nafcu.org
Employer Contributions
• The majority of 401(k) plans offer matching
contributions
• Is your match designed to maximize deferrals?
National Association of Federal Credit Unions l www.nafcu.org
Step Up Contributions
• To help increase participant deferral rates,
many plans are providing “step-up”
contribution features
National Association of Federal Credit Unions l www.nafcu.org
Design Trends—Automated Solutions
• Automated solutions have a positive impact on
participant behavior and participation
• Education alone does not drive participant
behavior
• “Studies show that if people default in, they
stay in.” Dallas Salisbury, Employer Benefits
Research Institute
National Association of Federal Credit Unions l www.nafcu.org
Automatic Enrollment
• Automatic enrollment can help achieve
satisfactory participation rates, but can have
unintended consequences
National Association of Federal Credit Unions l www.nafcu.org
Automatic Contribution Arrangements
Two types of automatic contribution arrangements:
• Qualified Automatic Contribution Arrangement
(QACA)
• Eligible Automatic Contribution Arrangement
(EACA)
National Association of Federal Credit Unions l www.nafcu.org
Qualified Default Investment Alternative
• Investment elections under an automatic
enrollment/contribution arrangement invested in a
Qualified Default Investment Alternative (QDIA)
National Association of Federal Credit Unions l www.nafcu.org
Roth 401(k) Option
• A Roth 401(k) option combines the features of a traditional 401(k) with a Roth IRA, providing employees with a potential source of tax-free retirement income
• Consider adding a Roth Conversion feature
National Association of Federal Credit Unions l www.nafcu.org
Safe Harbor Plan Design
• Adopting a Safe Harbor 401(k) plan design allows
an employer to avoid discrimination testing of
employee elective deferrals and/or employer
matching contributions (ADP/ACP testing)
National Association of Federal Credit Unions l www.nafcu.org
Plan Investments
• Consider the clarity of your plan’s investment
platform and ease of use
• Does your plan have an investment
philosophy, or an inventory of funds?
National Association of Federal Credit Unions l www.nafcu.org
Asset Allocation
• Asset allocation decisions comprise more than
90% of the variability of a portfolio’s
investment performance over time
• Automated solutions help do-it-for-me
investors—and nearly 80% of participants
consider themselves this type of investor
National Association of Federal Credit Unions l www.nafcu.org
Investment Policy Statement
• A plan’s Investment Policy Statement (IPS)
serves as a guide for evaluating and monitoring
the plan’s overall investment portfolio and
investment options
National Association of Federal Credit Unions l www.nafcu.org
Fiduciary Responsibility
• How important is fiduciary responsibility to
your management and Board of Directors?
• Do they truly understand the risk associated
with this role?
• Trend toward outsourcing this responsibility
with the rise of multiple employer plans that
offer comprehensive fiduciary relief
National Association of Federal Credit Unions l www.nafcu.org
Plan Fees
• Do you completely understand all 401(k) plan
fees and expenses?
• Who bears the cost of plan fees—the plan sponsor, participant, or both?
• Increased emphasis on fee disclosure and
transparency with new DOL regulations that
take effect January 1, 2012
National Association of Federal Credit Unions l www.nafcu.org
Employee Education
• Ensure participant education strategies are
suited to your plan’s demographics at the
micro level
• Employees understand how 401(k) plans work,
today there is greater emphasis on retirement
readiness and using the plan to achieve
financial goals
National Association of Federal Credit Unions l www.nafcu.org
Next Steps
•Initiate review of retirement benefits strategy and evaluate how well it aligns with your credit union’s corporate goals
•Perform a plan review to determine the effectiveness of your 401(k) and other retirement benefit programs
•As a NAFCU Services Preferred Provider for qualified retirement plans, Pentegra offers NAFCU members a free retirement program review and analysis
National Association of Federal Credit Unions l www.nafcu.org
About The Speaker
Richard W. Rausser, CPC Vice President, Consulting Services Rich oversees Pentegra's Consulting, Product Development, Client Transition and Marketing practice groups. Rich joined the Pentegra organization in 1997 and has more than 25 years of experience in the retirement benefits field. His extensive knowledge of the retirement plan industry includes a unique mix of small company and Fortune 500 level consulting work, as well as strategic product development. His knowledge of the retirement plan marketplace, and insights in benefit plan design and customer needs have been instrumental in not only expanding Pentegra’s product lineup and customer base, but in helping clients nationwide design effective benefits and compensation strategies. He is a frequent speaker on retirement benefit topics. Rich is a Certified Pension Consultant (CPC), a Qualified Pension Administrator (QPA), a Qualified 401(k) Administrator (QKA) and a member of the American Society of Pension Professionals and Actuaries (ASPPA). He holds an M.B.A. in Finance from Fairleigh Dickinson University and a B.A. in Economics and Business Administration from Ursinus College.
National Association of Federal Credit Unions l www.nafcu.org
Thank You
Questions?
Contact us at www.pentegra.com
Richard W. Rausser
800.872.3473