Pub. 6 2015 Issue 2

summer 2015 17 West Virginia Banker stake in their investments, makes it easy to start payroll deductions and get employees into the habit of saving through the plan. Allowing new hires to make rollover con- tributions to the plan and providing them with an easy way to keep from spending lump sum distributions from a prior plan is also advisable. Online enrollment is a more efficient inter- face operationally, and provides adminis- trative ease. It can also be used as a mech- anism that will make participants more likely to use online financial planning and guidance tools to map out a strategy from day one. Today, 47% of employers have a 401(k) plan auto-enrollment feature that is coordinated with online enrollment. The primary advantage of auto-enrollment has been to get at least 90% of workers into a retirement savings plan. Research shows that automated solutions positively impact participant behavior and savings rates. Auto-enrollment can be improved upon. Typically, automatic enrollment sets participants’ initial contributions at a mini- mum of 3% of their pay, increasing their contributions by 1% a year (up to 6%). While the 3% deferral rate is good, a 6% deferral rate is an even better starting point and what we recommend as a best prac- tice. Using 6% of pay for automatic enroll- ment goes a long way toward increasing savings rates overall—in particular if one's matching contribution is tied to a higher deferral rate. Doing so also enables senior executives and highly paid employees to save more by improving 401(k) non-dis- crimination test performance. While some may question whether au- tomatic enrollment is worth the cost of additional employer matching contribu- tions, the rise in cost will often be modest; most higher paid employees sign up for a 401(k) plan on their own. But employers are increasingly finding that the benefits outweigh the incremental additional cost. Automatic enrollment can make employ- ees feel more secure, thereby improving morale and a company’s ability to attract and retain talent. Encouraging participants to save more by using an auto-escalation feature is another integral best practice. Auto-escalation of at least 1% per year, but preferably 2%, is ideal. By adding such a feature to the initial auto-enrollment at 6% of pay, many employees will hit the all-important 10% of pay savings rate that we believe is cru- cial within a few years. A word of caution: Do not rely upon au- tomatic features in perpetuity -- the "set it and forget it" approach. Periodic re-enroll- ment and employee education meetings help participants map out a strategy and stick to that strategy to attain their long- term goals. Re-enrollment of existing plan participants helps participants take a fresh look at how they are investing their contri- butions, and may include new or updated tools to help them make their decisions. To conclude: An educated plan partici- pant is always a plus ... but not the only and/or final requirement for a success- ful retirement outcome. By employing automatic features, and staging periodic re-enrollment and education meetings, you will be doing your plan participants -- and yourselves -- a great service. n Make Your Shareholders happY! Use our C&I Program to instantly add loan growth and diversification. Contact your representative today or email to CI@centerstatebank.com 704.496.2612 5960 Fairview Road, Suite 400 Charlotte, NC 28210 www.csbcor respondent.com For more information on building suc- cessful retirement outcomes, contact us at 800-872-3473, or visit us at www. pentegra.com.