J. Mark Iwry, deputy assistant Treasury secretary for retirement and health policy, says defined contribution plan executives can take several steps to improve their plans now — and raise participation rates — without more government regulation or more risk to the plans.
Speaking at Pensions & Investments' annual West Coast Defined Contribution Conference in San Francisco on Monday, Mr. Iwry said many of the changes can be achieved with little or no extra cost because they reflect better practices.
One recommended improvement is to auto-enroll all existing employees, not just new employees. Many employees who are not enrolled skip participation because of inertia, Mr. Iwry said.
Another strategy is to follow up with employees who do not participate. If an employee does not enroll, plan executives should ask whether the employee would like to at a later date. “It's hard to see the downside” unless sponsors are concerned about adverse reactions from employees, Mr. Iwry said.
Another tactic is to raise the default participation rate above the traditional 3% of pay. Surveys and anecdotal reports show that plans do not get “materially more” opt-outs by participants when the default rate is raised to 5% or 6%, Mr. Iwry said.
Sponsors also could stretch their corporate match to improve participation. For example, instead of a dollar-for-dollar match up to 3% of annual pay, employers could offer a match of 50 cents on the dollar up to 6% of pay, Mr. Iwry said.
Mr. Iwry said 401(k) plans should be more willing to accept rollovers from IRAs or retirement accounts from another DC plan. He said the Treasury Department is working on guidance to “simplify the process” and “reduce the burden” that DC plans have encountered in accepting rollovers.
Separately, Mr. Iwry said the Treasury Department hopes to issue final regulations in a “few months” to encourage the use of lifetime income options within DC plans. In early February, the department issued two proposed regulations, one to make it easier for plans to offer the option of partial annuities, the other to make it easier for plans to offer the option of longevity annuities, also known as longevity insurance.