Retail companies have two characteristics that make passing discrimination testing almost impossible – a young relatively low paid workforce that has high turnover. After failing testing for nine years straight, Diesel, a fashion and retail company, found a way to not only pass discrimination testing but also increase participation by 100% without auto enrollment.
The Diesel benefits administrator attending a TPSU program held at Long Island University had been involved with the plan for 10 years but took over the 401k plan just two years ago. Though most of the employees are younger, there is a group of higher paid older workers unable to take full advantage of the company’s 401k plan because of testing failures.
So the company made some significant changes including:
- Making employees eligible to join the 401k at the 1st of every month rather than having to wait a year.
- Changing record keepers – the old one had an antiquated online interface. The new provider offers mobile enrollment apps.
- Conducting educational seminars which are taped for people not able to attend.
- Visiting stores and meeting with employees.
As a result, the participation in the 401k plan has increased 100% and the plan finally passed their discrimination test. Contributions are up dramatically. The benefits administrator also believes that these simple changes will help recruit new employees and keep the current ones longer.
Though there are other ways to pass discrimination testing including limiting the class of highly compensated employees and using the current v. prior year as well as safe harbor options, a healthier approach beneficial to the company overall is engagement by getting more of the less highly compensated employees to participate with increased deferral rates.
Companies can get complacent about with their current record keeper, TPA and advisor but, just like with Diesel, sometimes making a change can have dramatic improvements which may be required as the company and their retirement plan goals change. Are you getting what you need and want from your service providers? How do you know?
