PLANSPONSOR - December 2017/January 2018 - 2

Insights
Goals Within Limits
H
ere we are at the beginning of 2018. As we look ahead to another year, we all have goals,
prognostications and wishes we hope to fulfill in the next 12 months. While I think the
concept of New Year's resolutions sets most people up for failure because the goals are
too lofty to actually achieve, the practice of setting intentions is useful. As any yogi will tell you.
What types of resolutions or intentions might your employees be making?
In speaking with a friend-let's call her Susan-over the holidays, she shared with me
that she'd set a financial goal last year only to have it thwarted by an outside force. What was
her 2017 resolution? To max out her retirement plan, meaning she would save the maximum
allowed under the Internal Revenue Service (IRS) limit-$18,000 last year, $18,500 this year.
I was impressed-how many people really max out their retirement plan?
However, she said, while she had dutifully done her budgeting to ensure her payroll
deferral rates would meet that maximum, she ended up being told that the plan would likely
fail its discrimination testing, and some of the money would be returned to her. She had done
her part to put the money into the plan, yet she had not been told that she might be unable to
defer as much as the IRS allowed. She was upset because having money rejected went against
all of the other information received from her employer and plan provider. After all, she thought
she was supposed to be saving between 10% and 15% annually-that's what she was being told in
communications. She is a highly compensated employee (HCE), making approximately $130,000
a year, so a 10% to 15% annual savings rate would mean deferring between $13,000 and $19,500
into the plan-the higher amount not even an option under the IRS limits.
In our conversation, I realized Susan was making a good point about the retirement plan
system-a point we don't always consider. We often fixate on the majority of people not saving
to the match maximum, or at least to that 10% goal. However, for those who are saving 10%, is
it enough?
While Susan was trying to make, and act on, the right decision, this wasn't possible for
her. As a person who focused on meeting shorter-term financial needs in her 20s, Susan,
now in her mid-30s, worries she'll be unable to catch up and save enough over the next few
decades. Like others, she has seen the messages about compounding and the benefits of
saving more, early.
Many of your employees may find themselves in a similar position. They need to save
more, and it's likely they receive communications that encourage them to do just that. But what
are we doing to help them understand that saving to the max might be out of their control?
How do you handle returning money to employees or the communications about doing such?
As a plan sponsor, when was the last time you evaluated your plan-not just to see whether
you are passing your discrimination test, but whether many of your employees are being told to
save 10% to 15% of income only to find that, due to statutory limits, they can't reach that target?
We know the value of analyzing plan data to examine participant behavior, and we know
that any successful plan starts with adequate savings rates. But we forget there is a segment
of the population who may be challenged by either IRS limits or discrimination testing. How
many " Susan " s may be in your participant base? Is 2018 the year to re-examine those you might
think are doing fine but need more help to ensure they are on the right track?
... having
that money
rejected
went
against all
of the other
information
received
from her
employer
and plan
provider.
Alison Cooke Mintzer, Editor-in-Chief
2 PLANSPONSOR.com December 2017-January 2018

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PLANSPONSOR - December 2017/January 2018

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