Importance of Plan Design and Administration to Help Employees Build Retirement Savings

Offering a high-quality qualified retirement plan, especially in a tight labor market, helps attract and retain talent. Structuring a plan focused on retirement readiness assists employees to prepare for a financially secure retirement. Plan sponsors can take steps to improve their plan design and administration focused on successful savings outcomes for participants. With that in mind, we have some suggestions for consideration in regards to retirement plan design and administration.

Automatic Enrollment

Studies have shown that automatic enrollment considerably boosts the employee participation rate. Inertia, procrastination and uncertainty of what deferral rate and investments to elect, drives lower employee participation with voluntary enrollment plans. In fact, the Secure 2.0 Act set mandatory regulations that all newly established retirement plans will be required to implement automatic enrollment and automatic escalation. Annually, Vanguard publishes a report with statistics and trends called How America Saves. According to the 2025 report, retirement plans set-up with automatic enrollment have a participant rate of 94% versus only 64% for plans with voluntary enrollment. When employers decide to add automatic enrollment, they may elect to automatically enroll just newly eligible employees, or implement a retroactive automatic enrollment. Few employees opt out of being automatically enrolled, and this design provides employees with a much better chance of building adequate savings accounts for retirement. If the employer offers a match, automatically enrolling employees ensures they do not miss out on employer match contributions, which add to retirement savings.

Automatic Enrollment Deferral Rate

Perhaps the retirement plan already has the automatic enrollment feature, yet the automatic deferral rate was established at a lower rate such as 3%. To help employees save for retirement, employers should consider if the deferral rate allows the employees to take full advantage of the employer match, if offered. For example, if the employer offers a matching program such as 50% on the dollar up to 6% of employee contributions, then consider setting the automatic enrollment deferral rate to at least 6%.

Automatic Escalation and Participant Elected Automatic Acceleration

Plan Sponsors can further help employees save for retirement by implementing auto-escalation, such as annually increasing deferrals by 1% to a cap of 10-15%. If an employer is not interested in administering automatic enrollment and concern with employee’s reaction of deferrals being escalated, the Greenleaf Trust retirement website offers a feature where the employee may elect an increase to their payroll deferral percentage based upon their personal preference and financial plan. For example, the participant could elect to have their Roth and/or pre-tax deferral contribution increase by 1% each May 1st until the deferral contribution reaches a maximum percentage of 12%. This feature nicely sets up the employee’s savings goal on auto pilot. The participant may update or cancel their acceleration election at any time. Many of our clients have elected to allow this feature on our website.

Eligibility

The sooner an employee is eligible to participate in the retirement plan, the sooner they are able to prepare for retirement. Upon hire, employees sign up for benefits, and a delay in eligibility may lead to the employee not making time to enroll into the retirement plan benefit in the future. Some plan designs do not allow the participant to submit deferrals until one year after hire. Plans Sponsors can consider reducing this timeframe, such as immediate or 90 days, and additionally allowing the employee to defer the first payroll after eligibility rather than waiting for a specific entry date, such as quarterly.

Another plan enhancement idea is to set the employer contribution eligibility to align with the eligibility date for the employee to defer. For example, if an employee is eligible to defer immediately upon hire, and the employer match contribution begins immediately, the employee is more likely to enroll into the retirement plan benefit.

Some Top-Heavy plans are set-up not to allow employees to defer sooner than one year of service, due to the past requirement that if a participant is deferring into the plan, a top-heavy contribution was mandatory. With Secure 2.0 there are regulations allowing a plan, in most cases, to avoid making top-heavy contributions to employees who have not attained a year of service or are not age 21.

Employer Match Contribution

On average, it is recommended participants save 12-15% annually. With the most common match formula of 50% on the first 6% an employee defers, the typical employee savings rate is 6%. Thus, the combination of the employee and employer contribution equates to a savings rate of 9%, lower than the recommended annual savings rate.

Employer contributions are “free money” for employees. An employer could change their match formula to entice their employees to raise their contribution rates. If the above match formula was changed to 25% on the dollar up to 12%, the potential employer contribution expense remains the same. If the employee raises their contribution amount to 12% to take full advantage of the match, and the employer offers the same 3%, now there is a total of 15% contributed to the participant account annually. This stretching of the match formula motivates employees to save more and potentially reach the recommended goal of 15% annually (12% employee deferral + 3% employer contribution).

Schedule and Encourage Participant Education Meetings

It is easy for employees to get caught up in the day-to-day demands of life and not set aside time to plan for the future. On-site and/or education meetings provide employees with the opportunity to understand Plan benefits and help to engage participants to utilize tools to calculate their retirement readiness and take action to increase savings. Education meetings provide information to help participants not feel overwhelmed with decisions, and the recognition that small increases in savings leads to a more secure future through the power of compounding of savings over time.

Offer Individual Consultations

Participants may have questions they do not want to ask in an educational meeting session in front of others and may not know all the questions to ask. Offering participants the opportunity to meet individually with Greenleaf Trust to have their account elections reviewed will make them feel more comfortable and confident in choosing their contribution amount and investment option elections. Employees may also receive personalized support to evaluate their retirement readiness through projections of their monthly retirement income based on current savings and optional saving increases.

As always, our team is here to assist with plan design changes and administration. We appreciate your partnership and the trust that you place in us to work on your behalf.