What Does the “TPSU Ideal 401(k) Plan” look like?
The Plan Sponsor University (TPSU) is experiencing increased interest from Plan Sponsors in the basic components of the TPSU IDEAL 401(k) Plan. Educated Plan Sponsors no longer view the 401(k) Plan as a stagnant “off the shelf” company benefit program where the employer contributes 2% or 3% of compensation to the plan. That mindset and the 3 % annual funding levels are not sufficient to deliver a workforce to a secure retirement. That is the opinion of Plan Sponsors and Plan Fiduciaries, from New York to Tampa and Los Angeles who have been educated by The Plan Sponsor University. As Executive Director of TPSU, I have been told time and again “the numbers speak for themselves – a 3% annual company contribution to the 401(k) plan will not sustain an individual from retirement through to life expectancy.” Plan fiduciaries know that because they have viewed the numbers.
The TPSU Ideal 401(k) Plan Features
Plan fiduciaries who attend The Plan Sponsor University are becoming aware of how small revisions in their own 401(k) plan can take their employees closer to the TPSU Ideal 401(k) Plan. As a TPSU student in Milwaukee, Wisconsin recently pointed out, “these revisions are not major, they are not expensive and they take very little time to implement.”
After conducting over 150 TPSU Programs nationwide TPSU research has uncovered the following as components of the TPSU Ideal 401(k)Plan:
- Auto Enrollment (of all eligible employees is prudent)
- Auto Deferral (into the plan at a meaningful rate – recommend 6%)
- Auto Escalation (of participant deferral – necessary to deliver participants to retirement readiness – at 1 or 2% per year – capped at 12%)
- Employer Match (again, at a meaningful rate – ideally, something higher than 3%)
- A Managed Account Option is a prudent offering in the Investment-lineup (thus making it simple for participants to prudently invest)
Why Consider the TPSU Ideal 401(k) Plan Structure?
The majority of eligible employees will be better served than they are today. The Ideal Plan does not increase fiduciary liability. A good retirement plan advisor can show a plan sponsor how to implement these features without an increase in plan contribution costs. (The retirement plan advisor who holds the C(k)P Designation can demonstrate how to Stretch the Company Match without increasing the amount of the company contribution.) If present, incremental plan cost increases can be offset by the savings associated with having a workforce that is retirement ready at normal retirement age.
EXAMPLE for a hypothetical employee: Worker age 30, Retirement Savings of zero (0.00), Annual compensation of $45,000.00, Annual compensation increase – 2%, Estimated annual rate-of-return 7%, Employed through age 65.
|Employee Deferral Rate||Employer Match Rate||Available at Retirement|
|3%||100% of 3%||$ 525,757|
|6%||50% of 6%||$ 788,633|
|6%||100% of 6%||$1,365,890|
TPSU IDEAL 401(k) Plan uses features of Save More Tomorrow
The Plan Sponsor University provides education and research to the Retirement Industry.
Please ask your Retirement Plan Advisor for assistance in implementing the TPSU Ideal 401(k) Plan features. Retirement Plan Advisors who hold the C(k)P Designation have demonstrated industry experience and a commitment to education.
Latest posts by Steff Chalk (see all)
- Women’s Financial Security Requires Employer Support - April 12, 2021
- Are ESG Funds Faring Favorably for Retirement Plans? - April 6, 2021
- Managed Accounts and Financial Wellness Work Better Together - April 1, 2021