A lot can happen to a business in 10 years. The company can grow from 20 employees to 200. Ownership can change. Highly compensated employees can come and go. The workforce can become younger or older. Compensation structures change.<\/p>\n
Yet somehow, the 401(k) plan remains exactly the same.<\/p>\n
That\u2019s a mistake.<\/p>\n
A retirement plan should reflect the company that exists today, not the company that existed when somebody signed the original adoption agreement years ago.<\/p>\n
Plan design isn\u2019t something that should only be discussed when a plan is established. Plan sponsors should periodically review eligibility, employer contributions, vesting, allocation formulas, automatic enrollment, Roth provisions, profit sharing, and other features to determine whether they still accomplish the company\u2019s objectives.<\/p>\n
Sometimes a plan is unnecessarily expensive because an employer contribution designed years ago no longer makes sense. Sometimes owners and highly compensated employees aren\u2019t maximizing contributions because nobody bothered to revisit the design. Sometimes eligibility provisions create administrative headaches that could easily be eliminated.<\/p>\n
I\u2019ve seen plenty of plans where the sponsor doesn\u2019t even know why certain provisions exist. The answer is usually some variation of, \u201cThat\u2019s the way we\u2019ve always done it.\u201d<\/p>\n
That\u2019s not much of an answer.<\/p>\n
Your business isn\u2019t static. Your workforce isn\u2019t static. The Internal Revenue Code certainly isn\u2019t static. SECURE 2.0 alone has created changes and opportunities that sponsors should be discussing with their providers.<\/p>\n
You don\u2019t need to redesign your 401(k) plan every year. You should, however, periodically ask whether the current design still makes sense.<\/p>\n
Your 401(k) plan is an employee benefit and a business tool.<\/p>\n
If your business has changed dramatically over the last decade while your plan hasn\u2019t changed at all, it\u2019s probably time to take another look.<\/p>\n
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