As a plan sponsor, the courageous plan design requires a real commitment on your part to do more than just offer investment choices for a reasonable fee. The truth is that if your employees aren’t incentivized to save more, they probably won’t. So how do we incentivize them to save the recommended 10% per year?
Well, we use the stretch-matching strategy: It’s a retirement plan that matches 50 cents on the dollar up to 6%. We’ve found that most employees will only save 6%—not the 10% they should be saving. Many employees feel that saving above the matching level is a waste of time, yet all of the data shows that most will fall short of their retirement goal if they don’t save at the 10% rate.
Here’s our angle: If you change the plan design for contributing the typical 50 cents on the dollar up to 6% to contributing 50 cents on the dollar up to 2%, and then 25 cents on the dollar up to 8%, your employees would have to save on a 10% rate to get the entire 3% match.
With this strategy, you’re stretching your matching dollars while also incentivizing your employees to save the 10% they’re going to need in order create a paycheck for life. The great part is that it doesn’t cost you any more money since you’re still at that 3% rate.
This retirement plan design strategy creates a win-win situation for you and your employees.
In my next video, I’ll talk about the “safe harbor” plan designs, which I call the “silver bullets of retirement planning.” There are three of them, and each is critical in allowing you, as an owner, as well as your employees to save the maximum amount allowed by law.
If you’re interested in learning my entire process, if you’d like to book a call, webinar or meeting, or if you’d like to request a complimentary benchmark analysis of your plan, click here. Otherwise, feel free to reach out to me anytime for any questions you have. I’d love to hear from you.