Whether encouraging workers to save more for retirement or boosting employees’ overall financial wellness, companies are trying to do more with their retirement plans.
Here are five emerging trends in retirement plan design meant to improve overall plan effectiveness.
1. Increasing matching contributions
A growing number of employers are "stretching" their 401(k) match, according to Forbes. This means that they're increasing the percentage of salary they match, but requiring employees to save a larger portion of their pay in order to reap the full reward.
For example, instead of matching dollar for dollar up to 4 percent of an employee’s salary, an employer might match 50 cents for every dollar up to 9 percent of salary. The idea is to provide a more generous 401(k) match, but also ensure that workers have a more vested interest in retirement planning.
2. Promoting the benefits of HSAs
Health savings accounts (HSAs) have grown in popularity in the workplace since they were created in 2003. HSAs are emerging as a savings tool to not only save money for present healthcare needs, but also to save for health costs after retirement.
Those who stay healthy or use non-HSA funds to pay out-of-pocket medical costs can allow savings to build up in their accounts on a tax-deferred basis. Once the account owner reaches age 65, distributions can be taken for any reason without a tax penalty. Of course, distributions other than for qualified medical expenses are taxable to the same extent as a distribution from an IRA funded with fully deductible contributions.
3. Improved service and more self-service tools
Employers are going beyond picking plans based on fees, and are also considering the type of service available. This could include support for plan participants, as well as self-service tools that improve access to plan information. There's also a trend of more companies turning to the practice of auto-enrolling their employees to ensure that they're taking advantage of the company 401(k) plan.
4. Enhanced financial education for participants
More than two-fifths of employees have little to no savings, according to a recent Paychex survey. That means you may want to consider the value of packaging in financial wellness resources when offering a retirement plan to employees. Educational resources and access to financial advice can help employees assess their retirement readiness and save appropriately.
5. Socially responsible investing
Investors are increasingly demanding that their retirement savings not only provide a healthy return, but also do so through investments in companies that have socially responsible or ethical practices. Socially responsible investing entails choosing investments based on both financial return and social/environmental responsibility — or weeding out companies viewed as socially or environmentally irresponsible. Many mutual funds and exchange-traded funds (ETFs) now focus on holding only socially responsible investments.
Millennials are driving the trend toward socially responsible investing, as this age group is generally more concerned with how their investing impacts companies’ profits, and is seeking ways to align their personal values with their investment decisions. While less than 1 percent of 401(k) plans currently offer socially responsible investing, this is on an upward trend.
Paychex offers 401(k) and retirement services that are customized to the employers’ needs, while also providing a high level of expertise and service to help employers and their employees make the most of their retirement plan.