Your retirement plan company contribution strategy impacts the effectiveness of your overall retirement benefit plan. When contemplating a change, there are key considerations to keep in mind.
Four Considerations for Company Contribution Changes
When your organization is faced with challenges or change, it might be the time to evaluate your company retirement plan contribution strategy. Whether it is an increase or a reduction in the total spend, there are four items you should consider:
1) What type of plan does your company sponsor?
If your plan is a Safe Harbor Plan or your plan document states a fixed matching formula, you will need to take some additional steps to make a change, including plan amendments and formal notices.
If your plan has a discretionary formula, whether that be profit sharing or matching, you are generally safe to make changes when needed. With any of these types of changes, however, it is prudent to be aware of annual testing requirements and any potential true-up calculations your plan document may stipulate.
2) What is the timeline for the project and what resources will you utilize?
We recommend you reach out to your recordkeeper, plan consultant and third party administrator (if applicable) well in advance of when you would like to make this change. Consider allowing at least three to four months. The type of plan and change will dictate how many steps you need to take administratively. Also, if you utilize an external payroll vendor and your payroll process is automated, make sure you keep them in the loop as well.
3) How will you communicate the change to employees and handle any questions?
On top of any required communications, we recommend communicating with employees in a variety of platforms and well in advance of the change taking place. Have talking points for the human resources team if individuals have additional questions. Consider hosting a group meeting for employees to attend, depending on the significance of the change. Even in situations where communications may not be legally required, we can’t stress enough the importance of communicating any changes to your employees.
4) How will the change impact employee contributions?
Be aware that any changes to the employer contributions will have a ripple effect on the employees’ own contributions. An increase or decrease in total contribution dollars, matching formula change, or added eligibility requirements to earn match can all influence employees’ contributions. This is an important factor in making decisions to decrease contributions. Studies show workers are more likely to reduce or stop contributing altogether when that occurs.
What to do next
Regardless of the change your organization is considering, we encourage you to prepare well in advance and utilize your providers. Get started by ensuring your strategy addresses:
- The role each plan service provider will play in guiding or implementing the change
- Formal administrative or documentation changes required, including plan amendments, notices, or affects to annual testing (depending on the type of plan)
- How to best communicate the change to plan participants
The team of retirement plan experts at Francis Investment Counsel exclusively focuses on helping our plan sponsor clients make informed decisions when it comes to plan design changes. If you’re looking for expert consultation on your retirement plan benefit, reach out to one of our team members or fill out the form below for assistance.