What Employers Need to Know about 401(k) Plans
In a tight labor market, businesses need a retirement savings plan to recruit and retain good workers. In fact, about 80% of Americans work for an employer with a 401(k)-style retirement plan.*
In the following conversation, Robert Diedrich, president-wealth management division, Old National Bank, discusses recent rule changes and how employers can maximize the impact of a new or existing 401(k) plan.
What has changed about 401(k) plans for employers?
Diedrich: Under the Illinois Secure Choice program, employers in Illinois with at least 25 full-time employees must now offer an employer-sponsored retirement plan or automatically enroll employees in a state-sponsored plan. Companies without a retirement plan should start preparing one now.
Why is it important for employers to offer a 401(k) plan?
Diedrich: From a recruitment standpoint, businesses are at a disadvantage if they are not offering a retirement plan. A worker at a company without a plan might consider working somewhere else. Retirement plans have become a basic benefit in line with health insurance that employers should offer. Also, business owners can save for their own retirement through a company-sponsored 401(k) plan.
How does Old National Bank help develop a plan?
Diedrich: Our Retirement Services Group helps guide the client through everything from start to finish. They are our resident experts, well-versed in plan design and implementation. In the design phase, we consider whether to include certain features, such as a loan option, or Roth IRA. We determine the rules around eligibility. We can help prepare the plan documents using an IRS-approved prototype that fits 99% of retirement plans.
What about plan implementation?
Diedrich: We handle the administration of the account. This includes record keeping for the company’s master account and for every individual participant’s account. We conduct the required compliance testing each year for the plan and complete the necessary tax returns. We also provide financial education to all participants.
Old National's in-depth investment experience informs our recommendations. We are able to work on a daily basis with employers to provide a variety of investment options, including small-, mid- and large-cap funds, international funds, and cash vehicles for those nearing retirement.
How do you introduce the plan to employees?
Diedrich: We conduct ongoing education, starting with “retirement planning 101.” We encourage employees to take advantage of the plan. Most employers match a portion of the employee’s contribution. We explain why it’s important to make contributions at least up to the level of the employer’s match. There aren’t many places that guarantee to double your money. We also explain investment basics—the differences between various funds and the expected returns.
What else should business owners know?
Diedrich: Many local companies have branches in other states. So while our team is based in the Chicago area, we are mobile and often travel to different sites. We also offer video conferencing.
Does your team work with individual employees?
Diedrich: We work one-on-one with each employee on a retirement plan. They usually need some guidance. We look at all of their assets, not just their 401(k) account. We can tell them whether they are on pace to meet their retirement goals.
What other resources are available?
Diedrich: We have a robust set of online tools. Our client portal gives participants secure access to their accounts. They can check their account balance, estimated rate of return, and the projected value of the account in 30 years. We include links to investment research firm Morningstar so participants can drill down and gauge the performance of each fund. Participants can use the portal to move money between accounts and change contribution levels.
How can employers boost participation in 401(k) plans?
Diedrich: Auto enrollment can make a big difference. Employers can automatically deduct contributions from an employee’s wages unless the employee opts out or decides to contribute a different amount. A 3% contribution of pay usually isn’t missed by the employee.
What’s the best way to capture funds from the employee’s previous retirement accounts?
Diedrich: When we hold education sessions, we talk about transferring or rolling over other retirement funds into the plan. The advantage for employees is that they have access to our investment expertise and our fund choices. It also allows them to keep their funds in one convenient account.
Can an employer offer a profit-sharing plan and a 401(k) plan?
Diedrich: Yes, they usually go hand-in-hand as savings plans for retirement. Under a profit-sharing plan, the employer has the discretion to make a contribution depending on the success of the company that year. But a contribution is not mandatory. The profit-sharing contribution is tax deductible for the company. Also, profit-sharing is another way for company owners to save for their own retirement since they’re part of the plan.
Does Old National provide 401(k) plans for companies that are not already bank customers?
Diedrich: We handle 401(k) plans where we have no borrowing relationship with the company. But a fair number of our 401(k) client companies are already customers. As they grow, a retirement plan becomes an obvious step. It’s a natural progression.
What’s the next step?
Diedrich: Call us! We can conduct an analysis of an existing 401(k) plan and make recommendations or start a conversation about the design of a new plan. We pride ourselves at being our clients’ trusted advisor and helping create and manage a 401(k) plan tailored to your company’s goals that will provide for the retirement needs of both current and prospective workers.
Robert P. Diedrich
President - Wealth Management Division
Old National Bank
Chicago
815-773-2608
*Source: US Census Researchers via The Motley Fool article.
Wealth Management is offered through Old National Bank. Most wealth management products are not FDIC insured.
