Plan design is a great starting point, says Christine
Marcks, president of Prudential Retirement. “Spend time working with the right
adviser on plan design so it reflects the employer’s objectives for work force
management and their budget,” she tells PLANSPONSOR.
When it comes to contribution rates, Marcks says the usual
3% to 6% rates just don’t cut it. Auto features play a big part in helping
improve savings rates. “Employees really need to be saving 10% to 15% of pay to
have a sufficient nest egg for retirement,” she points out. "Our recommendation
is help employees get started with auto enrollment and then use auto increases
when they receive salary increases.”
Plan sponsors that can afford an initial enrollment of more
than 3% of salary should consider starting employees at 6%. Marcks is
reassuring on the issue of whether workers will balk at a higher deferral rate.
“Research shows that employees will continue on that contribution path,” she
says. Six percent as opposed to 3% will move them closer to that goal of 10% to
The plan adviser is an important player, and should be
tapped to select a default investment option that is simple and reflects an employee's
risk tolerance and years to retirement. Target-date funds (TDFs) and
asset-allocation solutions are both appropriate.
Employees should know what their retirement savings will
produce when they start using it for retirement income, Marcks says. She
recommends working with a provider that can give participants a projection. “We
know that making that translation between retirement savings and retirement income
drives higher and better savings behaviors,” she says.