There are two visions of the ideal retirement plan. They depend upon either looking through the lens of the Plan Sponsor or the Participant. A Revitalized Plan optimizes both the Plan Sponsor’s and the Participants’ vision.
Employers offer retirement plans for several reasons: to compete for good employees; to retain good employees; and, to enable all participants to become self-sufficient in retirement. Highly compensated employees, those most desirable to the employer, require a 401(K). Their needs dictate a Plan be both functional and cost efficient. Nearly all good employees see an advantage in a functional and cost efficient 401(K) Plan. Therefore, now more than ever, Plan Sponsors need their retirement Plan revitalized.
One aspect of Plan revitalization for small businesses recognizes their Plan must create a critical mass or purchasing power to the Participants’ advantage. Once critical mass has been established, and revitalized, it is to the Participants’ advantage to keep their assets in your Plan, rather than move it to an inefficient individual account. Like shopping at Costco or Sam’s Club, buying in bulk reduces overall cost; reducing overall cost leads to satisfied customers. Revitalized retirement plans reach and take advantage of critical mass faster than an individual can “buy in bulk”.
Using Choice Architecture, such as auto enrollment, auto escalates, and appropriate glide path default options are key to revitalizing retirement plans. Nudging participants by implementing Behavioral Economics is the revitalization that participants crave. Choice Architecture and Behavioral Economics are implemented at the plan level. They revitalize both visions and create a symbiotic relationship between Plan Sponsor and Participant.
A revitalized Plan acts in the Participants’ best interest. Keep It Simple, always do what is best for the Participant and the Plan Sponsor will inevitably build a great plan. Therefore, accomplishing the Plan Sponsor’s goals.