In Search of the Perfect 401(k) Plan
How would you design the perfect 401(k) plan? The definition of perfect is subjective, but here are the criteria most important for a coherent risk mitigation strategy.
David Witz1 min read135 wordsA thought provoking question was asked during the fi360 Annual Conference: “How would you design the perfect 401(k) plan?” My initial reaction was that there is no such thing as a universally perfect 401(k) plan since the definition of perfect is subjective.
Primary Reasons for Adopting a 401(k) Plan
- Attract quality employees
- Retain quality employees to minimize costs of turnover
- Provide an alternative source of compensation as a fringe benefit
- Move productive employees from workforce to retirement with adequate finances
Features of the Perfect 401(k) Plan
- A Safe Harbor match to reduce the cost and burden of discrimination testing
- Automatic enrollment
- Annually re-enroll those not participating
- Auto increase feature that moves participants to a 15% deferral rate
- A Qualified Default Investment Arrangement (QDIA)
- Limited investment menu with index funds
- No revenue sharing unless credited back to the fund
- Comply with section 404(c)
- Plan sponsor pays all plan expenses
