Is a 401(k) Plan for Everybody?

Discover the investment strategies for different age groups.

By By Jeffrey J. Buonforte  On Feb 26, 2016

On average, individuals will rely on their retirement savings for upwards of 60 percent of their post-retirement income. Fostering sound savings habits often starts with these retirement plans.

One very popular retirement plan is the 401(k). Employers can help employees make good decisions about 401(k) participation by understanding their motivation for saving at all ages. For example:

Twenty-somethings are often open to more risk/reward investments; however, many change jobs often, so it may be a challenge convincing them to participate. Many employers offer automatic enrollment and automatic escalation. A default deferral rate is established, and employees are given the option to opt out of the plan rather than the option to enroll. Annually, the employees’ contribution level increases. This plan is effective and typically results in 73 percent or higher participation rate.

Employees in their 30s and 40s are generally more conservative with investments, as they may be married, home owners and parents and recognize retirement plans are important.

Those in the 50-plus group should be thinking about retirement. Some employers offer lifetime income or annuity options within the 401(k) for those who are looking to guarantee lifetime income and protect against market downturns.

For small plans, the cost for record keeping and advisor services are typically paid by the plan participants as a percentage of their investments, while the plan sponsor pays for administration and compliance. There may be a tax credit of up to $500 per year for the first three years for small businesses that start a retirement plan.

Whether you offer a 401(k) plan or are thinking about starting one, here are some questions to consider.

For those with a plan, ask yourself:

1. When was the last time your advisor made a presentation to you and your staff?
2. Why should you consider changing or revisiting your plan, and what will this change cost?
3. Is your staff satisfied with the services offered?

For those without a plan, ask an advisor:

1. How often will my investment advisor meet with me?
2. How much will the plan cost?
3. What is required for enrollment, investment options, and administration?

At any age or career stage, a 401(k) is a valued part of a compensation plan.

About the Author: Jeffrey J. Buonforte is executive vice president and senior government banking/financial services officer at Lakeland Bank.

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