Maximizing a Company Retirement Plan

The president of a 50-person engineering firm contacted C.H. Dean with concerns about his firm’s 401(k) and profit-sharing plan. Participation rates and contribution levels by his employees are low, making it difficult for the company retirement plan to meet requirements that allow highly compensated employees to maximize contributions and the company match.

When he established the company retirement plan several years ago, the president did so with the following three objectives:

• Use the plan as a vehicle for his executive team to build wealth by maximizing contributions and the company match
• Provide a disciplined way for employees to save for their retirement
• Leverage the plan as a recruiting tool to attract, and ultimately retain, high-caliber employees

The president asked Dean to review the plan and offer guidance on how to achieve all three of his objectives.

To help the president address his concerns about retirement plan participation and meet his original objectives for the plan, Dean did the following:

• Reviewed all plan documentation and discovered that the company retirement plan was a traditional, non-safe-harbor plan, which contained a set of restrictions that made it difficult for the president and the executive team to maximize their contributions.
• Reviewed existing investment lineup and discovered performance was not meeting established benchmarks.
• Conducted two small employee focus groups to better understand obstacles to participation. Through these small group discussions, Dean discovered that there was a lack of understanding about how the plan worked and the long-term benefits of participation.

Because of these findings, Dean took the following actions:

• Reviewed benefits of moving to a safe-harbor plan with a discretionary profit-sharing component so that the executive team could maximize contributions to the plan.
• Presented the benefits of adding automatic enrollment and escalation features to the company retirement plan.
• Discussed adding Roth deferrals as an option to incent younger employees to participate in the plan.
• Discussed making the profit-sharing plan a new comparability plan, which the company could use to incent certain key employees. Such a plan could influence the firm’s year-end bonus structure in order to maximize the executive committee’s contributions while keeping the overall costs down.
• Embarked on a high-touch employee education program that included annual meetings with discussions about plan-specific questions and investment reviews. Each participant was offered the chance to schedule a one-on-one meeting with a Dean wealth manager to discuss any financial topics on their mind. Dean also extended the meeting invitation to each participant’s spouse, if applicable.
• Conducted the annual plan sponsor meeting, which covered an array of topics including the trustee’s responsibilities, prior year plan review, plan demographics, fiduciary checklist, investment performance, and national fee comparisons.

The president witnessed the following results within 12 months of implementing all the recommended changes to the plan and implementation of the high-touch education program:

• A 60% increase in employee participation and a 2% increase in contributions
• Ability for the executive team to increase contributions to the maximum contribution limits
• Improved performance that aligned with established benchmarks
• Improved oversight of the plan
• Enhanced employee communications and education