Heading to a brainstorming meeting? You might want to reconsider… Let me explain.
A small research survey conducted in 2014 asked LinkedIn participants to describe where and when they have their “eureka” (or “a-ha!”) moments. According to the survey, eureka moments only come 0.6% of the time while “in a brainstorm” or “at work.” Yikes. So much time wasted in meetings.
On the other hand, nearly 30% of eureka moments come when showering (11.2%), sleeping (9.2%) or driving (8.6%). It seems that if we simply stop trying so hard, ideas tend to “pop” into our heads more frequently. (Looking to find inspiration for more great ideas? Maybe consider a bathroom remodel. Perhaps one that includes a rainfall shower head to keep you in there longer.)
I had my own big “a-ha” moment a couple of weeks ago. It didn’t happen in the shower, but it did happen while I was having discussions with decision-makers from several employer clients (one of my favorite places to learn). We covered a variety of topics. Like how to improve employee financial education and the challenges older employees face when making decisions around Medicare and Social Security. We also talked about helping millennials develop strategies to address their student loan debt and the benefits of having guaranteed income as more employers move away from defined benefit pension plans and what we can do to help them from entering retirement with high fixed expenses, like a mortgage.
The “a-ha” moment came when I realized that we barely talked about the 401(k) retirement plans they have with us. I also realized we didn’t talk about how to get more employees to participate or ways to increase their savings. We didn’t talk about how to stop leakage (money that comes out of the plan before retirement but doesn’t make it back in, usually through loans or early withdrawals).
And why the heck didn’t we? Therein lies the answer. We didn’t need to because these employers implemented best practice plan designs. Their plans were humming right along, positioning the vast majority of their workforces with the goal of positive retirement outcomes.
So what exactly are best practice defined contribution plan designs? Here are a few key components:
1. Automatically enroll all new employees
2. Set the default saving rate high (like 6%)
3. Use automatic-escalation to step employees up to 10% over time (like 1% each year)
4. Stretch your employee match, if you offer one (e.g., if you match 1% up to 3%, move it to .5% up to 6%)
5. Set the investment default to a diversified option
6. Sweep all employees back into the plan every year (requiring employees to re-confirm their decision each year)
7. Eliminate or restrict loans (the 401(k) plan should not operate like a checkbook)
By applying a best practice defined contribution plan design, it allowed those companies to focus their education efforts on other important topics, like debt management, transitioning into retirement, Medicare, Social Security and basic budgeting.
In one of the meetings, I recall someone saying, “If an employee works hard, participates in the company’s best practice defined contribution plan and lets the retirement plan do its job, those participants will retire comfortably.” In another meeting, Aimée Dodson from Movement Mortgage said, “If employees simply pay attention and play along (relative to our company’s retirement plan design and ongoing education efforts), their lives and their long-term financial security will be greatly improved.” (High-five to Aimée and Movement Mortgage!)
The super-awesome team at Movement Mortgage
More and more companies are discovering the power of best practice plan designs, but there are still hundreds of thousands of employers who have yet to adopt them (and many of them are small- to medium-sized businesses).
So why don’t all employers make the leap to best practice plan designs? A few key reasons:
1. Inertia. It requires effort. We’re all busy. Especially leaders in small companies who wear multiple hats. But it is possible.
2. Fear that employees will be angry. My experience indicates that concerns and fears over negative employee reaction are misplaced, especially when a good communication and education strategy is developed.
3. Concern that it will increase matching expenses for companies that provide them. There are a number of ways to restructure the company match so there isn’t any additional cost when implementing a best practice plan design. Don’t hold your employees prisoner because of the matching concern. If you think about it, it’s counter-intuitive. An employer match is designed to encourage employees to save more. Refusing to implement plan designs that have the potential to increase participation and savings levels could do more bad than good. There are numerous ways to restructure your match to make this a non-issue.
4. Belief that it will create an administrative burden. With respect to an additional administrative burden, advisors and retirement plan providers are helping to make the adoption process easier and easier, as more and more employers embrace best practice plan design.
When it comes down to it, it’s about changing lives and helping employees achieve the retirement they deserve. If you’re an employer who offers a defined contribution retirement plan and are experiencing participation rates and savings rates in line with industry averages, you have the opportunity to change lives and provide your employees with meaningful financial security. With best practice plan design, all they have to do is pay attention and play along—and their lives may be dramatically changed for the better.
I hope you’re having an “a-ha” moment right now, even if you’re not standing under your rainfall shower head.