Pub. 6 2015 Issue 1

www.wvbankers.org 18 West Virginia Banker 10 Things Bank Executives NeedtoKnowAboutPension and 401(k) Plans By Mark Hogan, Pentegra Retirement Services N ational retirement policy is becoming a topic of conversation not just in Washington but in boardrooms all over the U.S. and is shaping how banks structure and govern their retirement programs. What are some of the most im- portant issues facing bank executives with respect to company retirement policy? Attracting, rewarding and retaining tal- ent. The pluses of employee retention are self-apparent, and the desire for retirement security and quality of retirement pro- grams are often cited as key reasons that employees join a particular bank and tend to stay there. Move toward progressive 401(k) plan design. Ensure your retirement plan is designed to help participants meet their retirement income goals by using auto- matic plan features that help participants set a reasonable level of salary savings, increase their contributions over time, achieve proper investment diversification and make better use of a plan’s investment alternatives. Help Your Employees Put 401(k) Savings on auto pilot. Automatic enrollment in – and subsequent automatic escalation of employees’ contributions to – a compa- ny’s 401(k) plan benefits employee and employer alike. Automatic features can include automatic enrollment, automatic escalation of salary deferrals, auto rebal- ancing and utilization of qualified default investment vehicles. Add a Roth 401(k) feature. Traditional 401(k) contributions reduce a participant’s income for federal and (usually) state tax purposes at the time contributions are made, and grow on a tax-deferred basis until the participant takes a distribution, which is treated as ordinary income. No one knows what the tax rates will be in the future, so it may be beneficial to hedge the taxable salary deferrals and earnings in a traditional 401(k) with earnings in a Roth 401(k) that can be withdrawn tax-free. Limit plan leakage. Most plans allow participants to access their accounts using withdrawal and loan provisions – both of which create leakage. It is best to limit the number of total loans outstanding at any given time—ideally to one or two--which limits 401(k) asset outflows due to the perpetual use of plan assets to meet day- to-day spending needs.