So if you have been watching this space, you know that I love camping. Some weeks ago, I had shared that my son and I had just purchased packs because we thought we might give backpacking a try. That’s kind of like buying water skis when you don’t have a boat, but our up-front investment definitely got us committed to the idea.
Anyhow, some weeks later, I had been doing all kinds of online research from an overwhelming array of options. I researched what gear we needed to buy next, where to go, and the proper technique for this or that. I even joined a couple of semi-elitist social media groups where I encountered lots of well-meaning but opinionated folks who told us we were going about this all wrong, blah blah blah…
Then one week, I simply got sick of analyzing everything, and we decided to just do it. We re-purposed some of our car camping gear, borrowed a lighter tent from a co-worker (thanks, Sean Duffy!), made a lightweight stove, hit the grocery store for a bunch of pack-able food items with some semblance of nutritional value, and headed off to our local state forest for an overnight trip. And you know what? It was great! We totally nailed it. We had a wonderful time, even with our slapdash, git-r-done approach. Even though it rained the second day. Yes, many thought we are a little bit crazy. But to be fair, some of you out there also think that shopping at the mall is “fun,” and I’d rather chew on aluminum foil than put myself in that particular situation. So it’s all a matter of perspective.
The point is, if you try not to over-complicate and over-think something, and you sometimes just go for it, you can be very successful. I could have analyzed our options all year long and we would never have left the house.
Now, I am by no means advocating a truly hasty, careless approach when the stakes are high. But it is sometimes all too easy to over-analyze something until you’re in a state of inaction. This is particularly dangerous when it comes to something as complicated as a retirement plan.
So, let’s talk about automatic enrollment.
Faced with low participation rates, small balances, and perhaps repeatedly failing nondiscrimination tests, plan sponsors are presented with a number of choices for encouraging participants to contribute to the retirement plan at higher rates. One of the most helpful, but one of the “scariest” choices is some variation of automatic enrollment – enrolling all participants in the plan at a stated rate when they are eligible, and increasing their contributions once per year thereafter.
The benefits of automatic enrollment are well-documented. Inertia is your participants’ worst enemy – why not make it their friend, the arguments go. And those are good points. But why is it scary? There are many reasons. Worries over how participants will react to an unexpected payroll deduction if they didn’t read the notice (pitchforks and torches, anyone?). Concerns that the wrong people would be enrolled. Additional administration and communication. Thoughts of small balances hanging out there forever. All valid concerns.
However, there are ways to design the plan to minimize the potential for problems. And across all of my clients that have implemented this feature, there has been very little pushback from the participants. Participants can always opt out, but a lot of them do end up sticking with it, which is very good for them in the long run.
The bottom line – something that is so good for your employees is not going to be easy. But do not be frightened by over-thinking what might happen, so that no action is taken. Instead, if it is the right thing to do, go for it, and do it sooner than later. Just make sure you’re going in with a good provider. Which brings me to my next tip…
If you need to change providers, just rip the bandage off.
So maybe it’s just not working out. You know you have outgrown your current provider, for example, but you just can’t bring yourself to make the switch. Why not? Maybe it’s not a good year because your payroll person just quit. Perhaps this is going to be a high-volume season for widget production, and you are not sure your staff have time for meetings. Your west coast branch office has gone rogue and you’re sending in reinforcements. Or whatever the case may be.
The problem with anything that spans a several-month-long timeframe is that there is never going to be a perfect time to make a change. And if your plan’s current provider truly can’t get your participants to where they need to be, and you keep kicking the can down the road, you are just putting your participants farther behind on their retirement timelines. So don’t stall out. Make sure you have a provider that is going to help with the heavy lifting, and get started. You will be very happy that you did.
Maybe you should try backpacking, too.
Stay tuned this summer for a post that will discuss questions to ask when considering a plan record keeper conversion!
Scott Gehman, ERPA, CEBS
Retirement Plan Consultant