Having a firm grasp of your company's demographics can help you and your financial professional devise an appropriate plan design that can appeal to and attract all employee segments. Because retirement savings plan participation tends to increase with income and age, plan sponsors can use certain plan design options to attract lower-paid and younger employees who are the least likely to participate in the plan. What's more, adding plan design features that are appealing to other employee demographic groups can help attract and retain those employees.
Tailoring Design Elements
Plan sponsors can tailor specific plan design elements based on employee demographics. For example, if a workforce includes a large group of lower-skilled and lower-paid employees who find it difficult to make retirement savings a priority, the plan sponsor might modify the formula for its matching contributions to encourage these individuals to participate in the plan. In this case, replacing a matching contribution of 50% of the first 6% of pay with a match of 100% on the first 3% of pay stands a better chance of getting the attention of lower-paid employees. The actual matching contributions may be the same, but employees may have an easier time understanding -- and thus appreciating -- the 100% match formula.
Here are some other plan design elements that can be used to address the needs of specific employees:
1. Limitations and restrictions may apply. Withdrawals prior to age 59½ may result in a 10% additional federal tax. Future tax laws can change at any time and may impact the benefits of Roth 401(k)s. Their tax treatment may change.
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Content in this material is for general information only and is not intended to provide specific advice or recommendations. To determine which plan features may be appropriate for you, please consult your financial advisor.
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