Why Does Retirement Plan Design Matter?

The way your company’s retirement plan is designed is very important and can be a huge motivator for your employees, especially if you want to help them get more involved in their own retirement preparation. It’s simple. If your plan has a good plan design, then the participants will be more willing to invest in it.

Why is compounding interest a great selling point?

Compounding interest is when your earnings accumulate on an investment and those earnings then accumulate on themselves. This results in a snowball effect that causes in your wealth to grow significantly over time. When your employees see this as a scenario, it excites them and motivates them to invest in their retirement because they can actually see their money growing upon itself. As an employer, if you want to increase your company’s retirement plan participation, consider showing them the mathematical magic of compounding interest.

Why is employer match important?

Statistics show that a lot of participants will choose only to invest enough needed to maximize on their employer’s match option. While it’s good to see that employees are taking their employer up on this benefit, it’s still not enough since studies have proven that an individual needs to save 12-15 percent of their compensation savings to retire and maintain the lifestyle they are accustomed to.

If you are trying to increase your employees’ participation in your company’s retirement plan, consider optimizing your stretch match option. For example, instead of offering a 100 percent match on the first 3 percent of an employee’s deferrals, consider offering a 50 percent match on the first 6 percent of deferrals. Or maybe a more effective option for your company would be to stretch that out even further – maybe a 75 percent match on the first 10 percent of deferrals.

A retirement plan design expert will work closely with you to generate an educated assessment of your company and the needs of your employees to help you construct a retirement plan that is not only better for your business, but is best for your team.

Email Rea & Associates to learn more great ways to help increase your retirement plan participation.

By Angie Isakson, QKA (Dublin office)

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