Thinking about making changes to your 401(k) Program?

A high-quality retirement plan is key to your ability to recruit, retain and reward a talented workforce.

In today’s competitive job market, finding and retaining top-performing employees is more important than ever. As a retirement plan sponsor, you may be thinking about the following issues and rules:

• Should our retirement plan offer our employees more investment choices?
• How can we make the retirement plan more user-friendly?
• Is automatic enrollment a good idea?
• Is there a cheaper plan out there that might be just as good?
• How does our 401(k) stack up against others in terms of fund quality, costs and fees?
• Is there a way we can monitor and evaluate investment performance?

It’s natural to think about the state of your business. What is working well? What could improve in the future? When was the last time you thought about the state of your company’s 401(k) plan? Make no mistake, 401(k) plans need at minimum annual reviews. A good 401(k) plan review evaluates four factors to gauge the plan’s effectiveness: investments, compliance, participation and deferrals.

Investments

How are the investments performing? Should the lineup be altered? Might some employees ask you to find investments with lower fees? Might others want a wider range of investment choices? How are we ensuring our confidence in the quality of our investment options remains high?

Compliance

Enrollment, employer matches, distributions, loans, non-discrimination testing—is everything compliant with the rules for 401(k) plans? If a plan is non-compliant in certain areas, your company could be at risk of financial penalties and lawsuits, and the plan could lose its tax-favored status.

It’s good to remind employees that distributions from 401(k) plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Also, as of January 1, 2023 per the SECURE 2.0 Act of 2022, once you reach age 73, you may be asked to take required minimum distributions.

Participation

Employee engagement is critical to a happy and healthy workplace. Our Retirement Plan Education Specialists will work with you to develop participant services that are specific to your workforce demographics, schedule and locations. How many of your workers use the plan? If your answer is “not nearly enough,” there are ways to encourage greater participation. If your plan doesn’t incorporate a safe harbor design, you’ll need broad plan participation from lower-earning employees to meet non-discrimination tests. Additionally, a healthy plan typically enjoys about 80% of eligible employee’s participation. If you’re finding that your plan is lagging in this category, it might be a good indicator that you should consider making updates to certain plan provisions to enhance your participation levels.

Deferrals

What is the average deferral rate among plan participants? Is it higher for the highest-earning employees? Do we find large groups of people not maximizing the employer contributions? While this tendency is common, you want all plan participants to contribute to their accounts at a decent level.

Get a regular 401(k) review to ensure it’s compliant and up-to-date.

We can help you evaluate your current plan and introduce you to our solutions which may work better for you. In understanding your company’s goals, objectives and workforce, we can help you optimize your current 401(k) plan. Our reviews are complimentary and meant to assist employers in making necessary adjustments to maximize the potential of the retirement program offered to your people. We are happy to share our knowledge and experience.

Was there really no inflation in July?

Experts, economists and even the President were quick to point out that there was no inflation in July of this year. However, many critics pointed out that inflation was very high at 8.5%. The truth is that both points are correct, it just depends on the time frame being discussed.

Prices from July 2021 to July 2022 (aka “year-over-year") were up 8.5%. However, the last month of that 12-month period showed no change in prices, which is why saying there was no inflation in July is also correct. Inflation has been one of the greatest challenges for our country for a long time now, but it's important to also look at short-term, month-over-month numbers to see if it may be getting better or worse. Sometimes, the monthly and yearly changes tell different stories, so considering both can help us understand where we’ve been and where we may be heading.

Are investments affected by inflation?

They sure are. As inflation rises and falls, three notable effects are observed with investments.

Inflation reduces the real rate of return on investments

If an investment earned 6% for a 12-month period and inflation averaged 1.5% over that time, the investment's real rate of return would have been 4.5%. If taxes are considered, the real rate of return may be reduced even further.

Inflation puts purchasing power at risk

When prices rise, a fixed amount of money has the power to purchase fewer and fewer goods. Financial tools can show you how to calculate inflation and forecast the effects it can have on your purchasing power.

Inflation can influence the actions of the Federal Reserve

If the Federal Reserve wants to control inflation, it has various methods for reducing the amount of money in circulation. Hypothetically, a smaller supply of money would lead to less spending, which may lead to lower prices and lower inflation. The Fed also has significant influence over interest rates. When inflation is high, the answer is usually to raise interest rates. While this makes borrowing more expensive, it can also raise interest income for money market funds and bonds.

Empower yourself with a trusted professional

When inflation is low, it's easy to overlook how rising prices are affecting a household budget. On the other hand, when inflation is high, it may be tempting to make more drastic changes in response to the increasing prices. The best approach may be to reach out to a financial professional to help you develop a sound investment strategy that takes both possible scenarios into account, so you’re prepared for anything.