This month, we are excited to collaborate with Andrew Norman, a Registered Principal with Voya Financial Advisors. Together, we’ve highlighted 4 key initiatives you can take to optimize your benefit planning for employees.
1. Help Them Truly Understand Their Plan: As a starting point, it’s important that employees better understand their risk management and cash or stock savings plans. Normally group Life and Disability plans are more cost effective and offer limited to no enhanced underwriting. Andrew regularly recommends clients consider maximizing employer insurance benefits before searching elsewhere. Unfortunately, these benefits are often misunderstood and offer little or no transparency.
“We find these benefits are of great value and are worthy of promotion. Employees are often pleasantly surprised when we educate them about these benefits, finding they have most of what they need offered by their employer.”
Furthermore, many companies offer automated savings or stock purchase plans outside of the 401k. Stock purchase plans can be a way for employees to accelerate liquid savings and supplement retirement savings. We often find these programs are not understood or clear in the minds of participants.
2. Teach Employees How to Optimize Their Benefits: Immediately after understanding and maximizing risk management benefits, find a way to fully articulate the benefits of a 401k, most certainly if there is a match. The national average match is 50% of employee contributions up to 6%. This means if an employee saves 6% the company will match another 3% of salary. Many simply see this as free money and automatically enroll in the plan. Others might say, ‘I can’t afford to participate’ when, in reality, they can’t afford not to.
“Employee education is essential to increasing participation. Believe it or not, annual wage has little to no bearing. Education is the key. The more education, the higher the participation.”
Corporations can also increase the automation of this by setting up the auto enrollment at 10% so employees receive the maximum match and profit sharing if and when they are made. Often, if an employee doesn’t participate in the plan, they miss out on profit sharing, not just the match.
Andrew recommends a Voya Financial white paper on the topic of default options offered by employers, and the findings are quite revealing about human behavior and participation.
3. Encourage Employees to Maximize their Retirement Plan Contributions: Most employees want to participate and would like to maximize their retirement plan contributions. People tend to be honest about the difficulty of going from zero savings to the annual maximum allowance of $18,500 for anyone under 50 years old, and $24,500 for those over 50 (for 2018).
“The way we help employees maximize their ‘retirement score’ in the 401k plan simulators, is by starting with a deferral limit up to the match. For most, this is a 6% deferral and palatable. We then set future deferrals to increase by 1% of pay the month after review season.”
Often times employees are offered a cost of living adjustment once a year or a raise/bonus 1-4 times annually. Most retirement plans will allow for a deferral of a raise or a bonus. Many ‘super savers’ elect to increase participation rates when they get a raise and elect to defer a portion of their bonus. This means they are only saving more if they are earning more and it doesn’t feel like an expense or a loss. The effects of this simple change can be substantial and worthy of exploration for most.
4. Offer Employees a ROTH: Many 401k providers offer a ROTH 401k— it’s always beneficial for companies to offer this as a component of their plan. Depending on the employee’s compensation, saving into a ROTH-401k could mean a substantial retirement advantage later in life. Traditionally, 401k plan providers offer calculators to help simulate what plan is best at each stage of life and earnings.
“We find the split is to be 50/50 as far as what plan is best, so we always advise clients do the math and run the calculations.”
Learn more about Voya Financial and what they offer.
Check out a case study for Busey, one of ADURO’s successful financial customers!