By Mark Wayne
A lengthy recessionary cycle has made long-term financial planning a more relevant and pressing issue for both employers and employees alike. American families and American companies have both been forced to adapt to new financial and professional realities, in many cases restructuring or reconsidering retirement programs and strategies.
There is a silver lining to that dark recessionary cloud, however. With significant regulatory and structural changes impacting the way 401(k) plans are administered and operated, business owners have a unique opportunity: the chance to use this transition to make changes that can add real and lasting value to their 401(k) program.
A detailed reevaluation of existing plans, and a strategic and responsive approach to implementing new policies and procedures with regard to the management and administration of 401(k) programs, can potentially pay off. Employers and employees both stand to benefit from a well-designed 401(k) program.
For attorneys and their firms looking to adapt to the ongoing regulatory changes and modify or upgrade their 401(k) program, here are a few of the key tips, and administrative and strategic nuances that can help boost their employee participation and engagement.
Embrace Change
There have been more 401(k) plan-related legislative changes happening in 2012 than in the last two decades. That eye-opening fact highlights the need for an effective and cohesive response from law firm executives and HR professionals. The trick is to embrace the additional clarity and transparency of the new rules, capitalizing on employees’ improved understanding of the financial and operational details of their 401(k) plan to improve participation rates and employee engagement. Now that many of these compliance-related changes have already occurred, leaders at law firms should take a proactive stance and develop a comprehensive strategy that integrates the answers to any questions into a clear communication strategy.
Manage the process
Traditional measuring sticks like asset growth, employee participation and average participant deferral rate are all common ways to assess the effectiveness of a firm’s 401(k) plan. Another important figure is the percentage of employees enrolled in an actively managed account. Participants with actively managed accounts benefit from portfolio selections designed to meet their retirement goals based on their unique investor type. In addition, meeting one-on-one with a professional advisor to determine the appropriate investor type will give participants a personal enrollment and detailed understanding of their investment selection. Managed accounts, participant education, and advice are an effective way to download the experience of investing professionals for the benefit of your employees.
Understand your industry
Law firms have a larger number of highly compensated employees and there are additional nuance that must be considered when designing or restructuring your firm’s plan. Defined by the IRS as individuals earning salaries over $115,000, this subset of employees is not permitted to contribute more than 2 percent above the average employee contribution. A rule put in place to prevent abuse of the 401(k) program, the contribution restriction for higher income employees will be evaluated through an annual participation test that compares participation rates across different classes of employees, and calls attention to the fact that new and existing 401(k) plans must accommodate a range of different employee profiles.
Keep on track
Attorneys also have a keen understanding of the importance of clear benchmarks and measurable guidelines. When designing or restructuring your 401(k) program, consider introducing an On Track Percentage or similar metric to coordinate and integrate variables like desired retirement age, investment risk, and monthly income goals into a single monthly deferral percentage. The national average of the percentage of employees on track to retire is 18 percent, a sobering number that highlights the untapped value for those firms that can make progress in this area. From helping to maintain a predictable organizational employment flow, to encouraging employees to become more engaged with their financial and career planning, a well-documented 401(k) program can add significant value to a firm. Employees who are secure in their retirement planning and who are not worried about their finances tend to be more focused and productive in their day-to-day work.
Communicate clearly
Getting your team on board is perhaps the single most important element of a strong 401(k) program. Consider sponsoring feedback sessions both before and after enrollment, listening to employees and determining what they value about the program–and what they would improve. To that end, place a premium on 401(k) plan management and advisory professionals who make it a priority to engage in face-to-face consultation and education. More than any other factor, that commitment to personal service and communication will yield long-term dividends in the form of a robust and value-added 401(k) program.
––––––––––––––––––––
Subscribe to the Legal News!
https://legalnews.com/Home/Subscription
Full access to public notices, articles, columns, archives, statistics, calendar and more
Day Pass Only $4.95!
One-County $80/year
Three-County & Full Pass also available
