It’s becoming common wisdom that the ideal or automated defined contribution (DC) plan is right for most companies. The ideal plan promises to dramatically increase an employee’s account balance by two-three times over their work career without increasing an employer’s liability. But some plan sponsors are concerned about increased work integrating changes with payroll. Joe DeSilva from ADP explains how more and more plans are adopting the ideal plan without increasing costs or work.
First, let’s review the Ideal Plan:
- Auto enrollment and re-enrollment
- Deferral starting at 6%
- Auto escalate 1%/year up to 12%
- Stretch the match
- Use professionally managed investments like target date funds
There are big pitfalls by not properly incorporating the ideal plan including:
- Auto enrolling at a low deferral rate
- Not including current employees
- Not offering escalation automatically
Employees prepared for retirement when the time is right means lower costs for the employer, greater productivity and higher morale. Along with apprehensions about push back from workers, plan sponsors are concerned about increased costs and the complications to integrate the plan with payroll as deferral rates are constantly changes
DeSilva says that ADP, which focuses on smaller plans, is seeing increased interest in the ideal plan. Because they see the tremendous value to companies that use the ideal plan, ADP does not charge extra to implement it, similar to other providers.
Though most providers integrate record keeping with payroll, which is essential, as one of the largest payroll providers and DC record keepers, ADP can more easily integrate systems to efficiently run the ideal plan which does have more moving pieces than a normal plan. Seamless and efficient integration is especially important to smaller companies that do not have a lot of people or resources to manage their DC plan.
