Plan sponsors and participants often hear about ERISA plans, but many may not understand exactly what that term implies. The Employee Retirement Income Security Act of 1974 (typically shortened to ERISA) set forth comprehensive federal guidelines for the regulation of employee pension and benefit plans that are offered by employers. Frequently, sponsors hear about ERISA when discussing retirement plans, but ERISA plans also include health care plans and other employee benefit programs.
Protecting Participant Rights
ERISA was designed to protect the rights of employee benefit plan participants and their beneficiaries, and include requirements covering participation, plan vesting, how benefits accrue, reporting and disclosure, and plan funding. ERISA outlines the standards that plans must meet to qualify for tax benefits, and also sets rules for plan termination.
Setting Fiduciary Standards
ERISA also defines the responsibilities of plan fiduciaries and other elements of plan administration. Plan fiduciaries include any person who has discretionary...
Employees who work for state and local governments and some of the highest-paid employees of nonprofit corporations can often take advantage of a special type of retirement plan, called a 457 plan. These plans can be a powerful benefit to employees that have them, allowing them to boost their retirement savings.
Employees of state and local governments, including police officers, firefighters, and some teachers, may have access to one type of 457 plan. Another type of 457 plan can be used for highly-compensated employees of nonprofit organizations, like unions, hospitals, or charities.
Employees who have both 457 plans and another retirement plan, like a 401(k) or 403 plan, can contribute the maximum allowable contribution to both plans. In 2016, the contribution limit for all three types of plans is $18,000, which means a person whose employer offers both a 401(k) and a 457 plan could contribute up to $36,000...
Auto-enrollment is gaining popularity rapidly with sponsors of qualified plans. It’s easy to see why. A 2015 study by Vanguard Research stated that employee participation rates increase to more than 90 percent for plans that adopt automatic enrollment, and some 80 percent of participants increase their contribution rates.
As a plan sponsor, if you choose to adopt automatic enrollment, you need to consider how to structure this feature. To properly design your auto-enrollment program, you need to consider a number of factors:
Timing. Many sponsors feel they should auto-enroll new employees when they’re hired, assuming that new employees won’t get used to a certain amount in their paycheck, which then drops when enrollment kicks in. However, it may be better for the plan sponsor to consider overall employee tenure, to avoid the paperwork, and expense of enrolling employees that don’t stay. For example, the sponsor may note that employees who reach...
More and more companies are realizing that encouraging financial wellness among their employees is good business. A 2016 survey from GuideSpark, a workplace communication company, noted that three-quarters of employees feel impacted by financial stress, and 81 percent of employees would be less likely to leave a company that was helping them improve their financial wellness, such as offering employee retirement plans. The same survey noted that employees felt the top benefits of a financial wellness program included:
Reduced financial stress (81 percent)
Greater appreciation for their company (76 percent)
Lower healthcare costs (65 percent)
Improved physical health (62 percent)
Greater ability to focus on their jobs (56 percent)
This surge of interest from employees in financial wellness is encouraging more employers to develop financial wellness programs. It’s important, however, to provide financial wellness education effectively, in a way that encourages employees to participate. Your financial wellness program should be:
Generation X, people who are ages 35 to 49, are much less confident they will have enough savings for retirement, according to a survey conducted by Harris Poll on behalf of Scottrade, Inc. Only 19 percent of Gen Xers are extremely confident they’ll have enough money for retirement. More than one-half (56 percent) say they plan to work in retirement. In addition, almost a third (29 percent) of Gen Xers worry about losing their jobs, and over a quarter (26 percent) say educational expenses, either for themselves or for their children, is a top financial priority. All of these concerns can affect your employees’ success at planning for retirement and also affect the success of your employer retirement plan.
Financial stress As a retirement plan sponsor, you want to help your employees plan for a successful retirement and achieve financial wellness. While financial wellness is important to all your employees, Generation...
We all like to think we understand why we take certain actions, but that’s not necessarily the case because of the psychology behind our decisions. Frequently, we choose actions that are based on emotion rather than facts, or we respond to even more subtle suggestions that guide our behavior. The field of behavioral finance investigates why people don’t always make the best financial decisions, like how much to save for retirement. That’s particularly important for retirement plan sponsors who want employees to make better decisions about their future. So, what does influence your employees’ decisions? Here are some of the factors:
Inertia. We often expect and even want things to continue the way they always have in the past. This inertia keeps us from making decisions that could improve our lives or even change previous decisions. For example, employees may avoid enrolling in a 401(k) plan because they never have done...
The good news is that more and more employees are recognizing the importance of participating in their employer-sponsored defined contribution retirement plan. In fact, a 2014 survey from Towers Watson stated that the number of retirement plan sponsors with more than 80 percent employee participation increased significantly since 2010, from 50 percent to 64 percent. In what is probably not a coincidence, the percentage of companies that offered automatic enrollment in their employer retirement plans to employees increased from 57 percent in 2010 to 68 percent in 2014.
Automatic enrollment sounds simple, but it’s actually more complex. Companies that implement automatic enrollment need to make a number of decisions, including:
Who to enroll and when to enroll them. While some companies enroll participants on the date of hire, others wait until employees have fulfilled a term of service before enrolling them. There are advantages and disadvantages to both methods. Employees who...
On Wednesday, the U.S. Department of Labor (DOL) released its final fiduciary rule. This rule broadens the definition of “fiduciary” to include advice provided to brokerage retirement accounts. Since the rule’s release, our Legal team has been analyzing the full text of the rule and related materials to determine the impact to your business.
This final DOL fiduciary rule is complex, and it will take careful analysis to fully understand all of its implications. We’ll continue to review each of the rule’s provisions in detail to ensure that we provide you with the correct guidance. As we complete our analysis, we’ll share our findings with you and provide additional information regarding how we’ll support your plan through this transition.
As we have said all along, please do not take action beyond being vigilant in your awareness and general preparation. Once we understand the details of the rule and how they affect...
1060 Maitland Center Commons
Maitland, FL 32751