PLANSPONSOR - February/March 2021 - 16

PLAN DESIGN | COVER STORY
As a committee's values represent
its belief system and ideals,
Brummel says, its goals for the plan
should derive from those values. Goals
could include a specified percentage
of employees maximizing the match,
or their getting a certain total-i.e.,
employer plus employee-contribution
to their account annually.
Also before making any changes,
the committee should have a good feel
for participant behavior in the plan.
Ellen Lander and her plan sponsor clients review participant
data every quarter: not just outcome projections, but factors
that influence those, such as changes in participants' deferral
rates and whether transaction activity has altered participants'
investment allocations and diversification meaningfully. Lander,
founder of Renaissance Benefit Advisors Group in Pearl River,
New York, also scrutinizes participant data annually with the
employer's plan committee.
" As a fiduciary, you serve the plan's participants, " Lander
says. " How you make decisions for plan design all comes down
to having a good understanding of who your employees are, how
they think and what they do. Once we understand who the participant
is, then we can make informed decisions. "
" You need to implement plan design carefully, based on
the demographics of your particular plan, " Peluse says. " It's
easy to say that every plan should automatically enroll everyone
at 6% and automatically escalate everyone at 2% a year. But
that's just not reality for many businesses, to implement that
initially. Sometimes it is best to start on the smaller side and
then increase gradually. "
The demographic factors that are typically most significant
as to what-and whether-plan design changes get made are
the employee group's income and age, Peluse adds. " We have
more success implementing aggressive automatic features with
companies that have younger employee demographics, because
that's all those employees know, " he says. " For a company with
an older employee demographic, they're used to an opt-in design,
so aggressive auto-design features aren't always well-received. "
Small Ways to Sweeten Outcomes
Some actions to improve participant outcomes are easier to take
than others. Here are four less complicated ones:
Speed up eligibility. A large majority of adviser Christopher
Kulick's clients now allow immediate eligibility for new hires.
Some in high-turnover businesses have a short waiting period
such as one month or three months, to ensure the employer does
not spend match money on workers who leave quickly.
It is key to understand the likely effect on the employer's
match cost before taking this step, says Kulick, a principal at
16 PLANSPONSOR.COM February - March 2021
CAPTRUST in Doylestown, Pennsylvania. " But the trend is
moving toward immediate eligibility, " he says. " It's the impact of
market forces, with respect to attracting talent. "
Whether immediate eligibility will work is likely an industryspecific
issue, with turnover rates playing a huge role, Glasgow
says. Rather than just saying, 'Everyone should be eligible
immediately,' you have to be adept at figuring out the impact, "
he says. A plan's average deferrals for non-highly-compensated
employees [NHCEs] could decline if a high-turnover employer
added immediate eligibility, because many people may not
participate or may participate at very low levels, he explains.
" Suddenly, that creates a testing problem. Changing eligibility
can really move the needle on some of those results. "
Shift to immediate vesting. This past year, Kulick had several
clients consider shortening their plan's vesting requirements for
employer contributions, to remain competitive. " As we look at
our clients' peers, the trend is moving toward shorter vesting
periods, and I think that will continue as the economy improves
and we see more competition to hire people, " he says. " But
whether plans will do it really comes down to cost. "
Add a Roth feature. Most of Kulick's clients have a Roth feature
in their 401(k) plan, though participant usage remains modest.
" I really don't see a downside to offering a Roth option, because
there's no cost to the sponsor. And it allows for participant choices:
Do they want to pay the taxes on this money now, or do they want
to pay them later? " he says. For sponsors, adding a Roth option is
simple-the only possible challenge might be administrative, say,
if the employer does payroll internally, he says.
All of Brummel's plan clients provide a Roth feature, which
he thinks makes sense because many participants will pay
higher personal income taxes in the future. " The utilization rate
depends on the plan's demographics, such as the average income
level and average age, " he says. Younger and proactive employees
tend to be drawn to a Roth feature.
" It also depends on the access we have to the employees,
to educate them on the benefits of features such as the Roth, "
he adds. " Education is sometimes not discussed when talking
about Roth utilization, but most people don't understand the
[tax] benefit until somebody explains it to them. "
" It's very likely that your
plan's 'do-it-yourself' investors
are now overweight to equity
if they have not rebalanced
their portfolio. "
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