Using Plan Design to Improve Participant Outcomes

Plan sponsors should review their current plan design features and consider how they drive participant behavior. Studies have shown that participants will often choose deferral rates at a level to obtain the maximum employer match. By stretching out the matching formula, the employer cost stays the same but the employee is encouraged to save more. For example, a plan that matches 100% on the first 5% could move to a 50% match on the first 10% of salary. The employer cost remains constant at 5% while at the same time employees are motivated to contribute up to the 10% level.

It is important to limit participants’ ability to use the money for something other than its intended purpose: retirement. Plan sponsors should consider limiting, if not eliminating, loan availability within their plans. Participants rarely understand the true impact of taking a loan from their account—“borrowing from themselves” is a common justification employees use. Although the current economic environment may not be the best time to eliminate loans, it should be something to consider for the future.

Read Improving Participant Outcomes: An Action Plan for Plan Sponsors and start developing your action plan to improve participant outcomes. If you have any questions, or would like to begin talking to a retirement plan advisor, please get in touch by calling (800) 388-1963 or e-mail us at hbs@hanys.org.