Tips for designing a successful 401(k) plan
WHITE PAPER |
What constitutes a successful 401(k) plan? There has been a lot written about 401(k) plan design, fiduciary duties, plan governance, participant disclosures, ADP/ACP testing, investment lineups, etc., and it all seems so complex. However, maybe it is really not all that hard to define. One can express a 401(k) plan as a formula, with an employee's ultimate benefit equaling:
Employee savings + Employer contributions ± Investment earnings – Administrative expenses – Preretirement withdrawals = Account balance at retirement
This approach is equally applicable to other employee savings plans, such as a 403(b) plan. When an employer applies the formula to its plan and the average employee's potential end product (the account balance at retirement) likely provides that employee with the ability to generate sufficient income to live on in his or her retirement years (while doing so with reasonable contribution and administration costs for the employer), the plan is a success. If there is a shortfall, then perhaps the plan needs attention to try to fill the gap.
In this white paper, titled Tips for designing a successful 401(k) plan, we share a few thoughts as to items employers should consider with respect to 401(k) plans.