Is it truly August already? You have spent the last six months planning for your summer vacation and it is finally time to go! All that planning for a week on the beach, the amusement park, camping or maybe even backpacking through Europe (someone keeps nagging me to do this). How many times are you going to check to make sure you have your toothbrush?! Odds are you are going to forget something, but it is not the end of the world; there is a convenience store virtually on every corner and what Dad doesn’t want to have to wear Mickey Mouse swim shorts?
The big question is, how many times did you review your retirement plan over the last six months? Hopefully it’s at least as many times as you checked to make sure you had your favorite pair of shoes packed for your weeklong trip. It is becoming increasing more difficult to find time to complete everything on your to-do list. Now more than ever, we need to welcome change and embrace the technology that allows us to more efficiently manage our to-do items.
One way the retirement industry is adopting to this fast paced environment is by offering automatic features as part of an employer-sponsored 401(k) plan design. If you have been following The Principal® consulting blogs you will be well-versed in this plan design. If you have not been following along…I forgive you this time. Below is a link so you can get caught up!
As with any change, there are concerns and misconceptions that we must overcome before we approve of new concepts. Here are a few of those concerns and I encourage you to discuss these with your financial professional or administrative contact:
- When adding automatic enrollment I am only going to apply it to new hires. Why would you consider one group over another? If you decide to apply this feature for new hires it should be appropriate for your existing employees as well. Treating each group differently could cause additional notices and become an administration burden.
- Auto-enrolling everyone in the plan will increase my contribution cost. This is a logical thought and something that should be taken into consideration. Your retirement plan can be designed to fit around any budget and still maintain a positive impact on your employees saving rates.
- Adding auto-enrollment at 2% is all my employees need to get started.Do you think a 2% savings rate will lead to a successful retirement? The fear to enroll participants at a higher rate is that they will opt out anyway. A recent study by The Principal shows that only 4% more employees opt out of auto-enrollment if the starting deferral rate is 6% instead of 3%. In addition to starting at a rate around 6% auto-escalation is an exciting feature to help ensure your employees reach a desired savings rate.
Planning for your retirement can sometimes be as frustrating as planning your summer vacation. Please take some time to become aware of what tools are available to help with your planning. My list of vacations in the introduction did not include the Iowa State Fair. If you live in Iowa or are lucky enough to be visiting over the next few weeks I hope you have a great time. And if you forget your toothbrush you can borrow mine! Happy end of summer!
***The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392. t140804019s