401(k) Plans: What's Ahead for 2016
Small businesses sometimes offer to match employee 401(k) plan contributions as a way to help recruit and retain a talented and productive workforce. Here's a look at how 401(k) trends for 2016 may help employers meet their business goals.
Increased Employer Contributions
One way to get employees excited about a retirement plan is for businesses to increase their contributions. Traditionally, the standard common matching formula was 50 percent for the first six percent. Some employers have expanded their matching contributions to 25 percent of the first 12 percent, a trend some experts predict will continue through 2016.
Greater Employee Education
The more employees understand about their company's 401(k) plan, the more informed their choices become as participants. One 401(k) education trend is outcome-based, online sessions for employees, including brief (5- 10-minute-long) learning videos with a focus on improved outcomes. Employers appreciate that such videos can be conveniently viewed online at home, rather than becoming a distraction in the workplace. Expect more plan sponsors to provide this type of online investment advice in 2016.
Another key to a successful retirement plan is making it easy for employees to enroll (and stay enrolled). The process should be made as simple as possible since most employees elect to maintain the same benefits each year. For example, plans that offer automatic enrollment, as well as automatic escalation and annual re-enrollment, generally see employee plan participation rates of 90 percent or higher.
Consolidated Investment Menus
A 401(k) match trend noted by economists versed in behavioral finance is that a smaller number of options within an investment plan favorably influence participation. Refining "an expansive and potentially confusing menu of options" through a formal process of review and evaluation "will make things easier on plan participants."
Retirement plan expert John Lawton points to these additional trends expected in 2016:
Professionally Managed Options
Several plan sponsors have crafted investment menus offering both balanced fund and target-date choices.
Seek Out Investment Advisers Specializing in 401(k) Plans
If the plan you offer appears overly complex to employees and thereby tends to decrease participation, you might consider following the trend of hiring an investment adviser who's well-versed in 401(k) plans. Such advisers may be better equipped to clarify plan options both to employer and employees, encouraging greater participation among those who more clearly grasp the benefits of the plan your business offers.
If you don't already offer a retirement plan in place for you and your employees, you might be at an extreme disadvantage. Be sure to compare your retirement options and familiarize yourself with the best retirement plans that will help you attract and retain the best employees.