The power of plan restatement

Many aging baby boomers can’t yet retire – the result of insufficient planning and saving. Employers, however, can help the next generation successfully retire by age 65 or earlier.  

Every five to six years, the government requires business owners to restate their retirement plans and adopt IRS’ new and modified rules. The plan restatement also provides employers with an opportunity to impact significantly the retirement readiness of their employees.

Business owners should consider a few elements as they complete this process by April 30, 2016:

1. Add a Roth component – Employees make some or all of their 401(k) contributions as post-tax Roth. Roth grows tax-free as long as it is withdrawn after age 59.5 and the first Roth contribution was made at least five years prior. Young employees and higher income earners may especially benefit from Roth.
2. Implement auto-enrollment with an auto-increase feature – Employers who automatically enroll employees in a retirement plan that simply have never taken the time to enroll themselves help those employees save for retirement. Auto-increase ensures employees increase retirement contributions each year, which leads to greater savings and improved retirement readiness.
3. Liberalize eligibility provisions – Employers who allow employees to join the plan earlier allow them to increase savings more quickly. Employers have begun to re-evaluate minimum eligibility requirements (e.g., age, number of months worked) for retirement success.
4. Use the plan as competitive advantage for recruitment and retention – Top talent evaluates benefits and salary. Employees feel valued when their employers show that they care about their retirement preparedness. Employers should view retirement plans as a tool for acquiring top talent and retaining their best employees.

The U.S. Department of Labor’s collected fines from plan sponsors continue to grow each year. Plan sponsors that do not comply with timely restatement requirements and whose operations do not match the official plan document may face significant negative financial consequences.  

-Ginny Gribble is director of retirement plan services at Sikich LLP in Brookfield.