By Todd Hughes, J.D. – Vice President & Retirement Services Officer
Around October of every year, business owners, human resource employees, CFOs are having conversations with their health insurance broker regarding the renewal of their health insurance program. Usually these conversations are about whether the current health insurance structure and design are meeting the goals of the company and their employees. Options such as changing providers or increasing deductibles are often considered. While we ask questions about the health plan annually, the other major employee benefit, retirement, hardly ever gets reviewed from a plan design perspective.
401(k) plans are very flexible in how they can be designed and can be changed as the company’s goals change, but most plan sponsors don’t review their plan’s provisions on a regular basis. The first question a plan sponsor should ask themselves is “What is the goal of our 401(k) plan?” The common answers to that question are, “I need it to attract and retain employees” or “I have to have it because my employees ask for it”. If that is the answer, make sure the design of the plan is competitive in your particular industry’s market. This may lead to ask other questions like, “What are other company’s matching formulas?,” “What about the vesting schedule and eligibility?,” or “Are competitors offering a Roth option?” Adjusting the retirement plan provisions to fit the ebbs and flows of the employee market is vital to keeping a satisfied employee base and a populated recruitment pool.
Another common answer to the question of “What is the goal of the 401(k) plan?” is that the owners want to maximize their contributions and tax savings. What does “maximize” mean to that owner, a $19,000 401(k) limit? A $56,000 overall 401(k) plan limit when adding employee + employer contributions? Or an even a greater limit, sometimes in excess of $200,000 if they were to add a cash balance plan? Again, the answer to this question can vary and can also be changed as the profit of the company goes up and down.
There are other answers to the question of “What is the goal of our 401(k) plan” and many times there are plan design changes to fit other answers as well. So remember, next time you are having trouble recruiting employees or when the health plan renewal comes around, ask yourself, “is the retirement plan design still meeting our company goals and objectives?”