Offering a 401(k) retirement plan for employees is a great benefit; however, getting employees to appreciate and take advantage of this benefit is often a challenge. A retirement plan with engaged, informed, and participating employees is a successful retirement plan. So, how does that happen?
Two of the factors most often mentioned when measuring a successful 401(k) plan are high participation rate (80%–90% of eligible employees participating) and high contribution rates. With uncertainty about Social Security, rising healthcare costs and increased life expectancy, the ability to achieve a fulfilling retirement is heavily dependent on the amount a participant can accrue in his/her retirement plan. It is vital for employees to take advantage of the opportunity to participate in a firm’s 401(k) plan.
Most plan providers offer tools and calculators available on a website to assist participants in determining how much they need to save in order to meet their retirement goals. In addition, encouraging employees to visit the site to monitor their account and take advantage of the educational tools may get them more engaged in managing their own retirement savings and making the retirement plan more successful.
Benefits of Increased Savings
There are generally two high-level strategies to follow to generate a retirement plan account balance that meets retirement goals: start early and increase savings over time. All new employees should be encouraged to start as soon as they are eligible at a savings rate that they are comfortable with and then they should re-evaluate their account at least annually, if not more frequently, to see if they are on course to meet their retirement savings goals and if not, to consider increasing their contribution rate.
The hypothetical chart below assumes a 6% rate of return and shows the potential an employee could generate by increasing his or her 401(k) contribution by a small amount each week. All participants should be strongly encouraged to invest in a way that is consistent with their risk tolerance since investments are subject to market risk, fluctuate, or may lose value.
Encouraging employees to start early and increase their savings rates over time can help a retirement plan be successful for both the employees and the firm owners.
An employee increasing his or her contribution by just $25 each week could generate additional savings over time.
Assumptions: Assumes no initial balance and a rate of 6% return and no withdrawals. This hypothetical example is for illustrative purposes only and is not intended to represent an expected or guaranteed rate of return for any investment vehicle. It does not take into account the impact of any fees or taxes. Withdrawals from a tax-deferred plan are subject to normal income tax treatment and, if taken prior to age 59½, may be subject to an additional 10% federal income tax penalty. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk. Actual results vary.
It has often been suggested that architects never retire. Regardless, most understand that sponsoring a retirement savings plan can help attract and retain qualified employees. The ultimate success of a plan depends in part on having engaged, informed, and participating employees.
Whether you already have a retirement plan for your firm or are planning to start one soon, you should know the Members Retirement Program is the only retirement program endorsed by the American Institute of Architects (AIA) since 1991 and is managed by AXA Equitable. The Program provides value-added services specifically designed for you, and simplifies the process of establishing a retirement plan with personalized service, full plan administration, and a diverse range of investment options. If you would like information, please call 800-523-1125 or visit www.axa-equitable.com/mrp. All information and consultations are free of charge and are made available to AIA members at no obligation.