How Can Altering Plan Structure or Plan Type Improve Participant Outcomes?

When employers review and modify the structure or type of their employee benefits plan, they have the potential to directly influence the financial well-being of their workforce. By making strategic changes, employers can enhance both participation rates and the overall effectiveness of the plan, leading to better outcomes for participants.

One of the most impactful ways to improve participant outcomes is through automatic features. Automatic enrollment, for example, addresses one of the biggest hurdles to retirement savings—procrastination. When employees are automatically enrolled in a retirement plan, participation rates typically increase dramatically. Moreover, by adding automatic escalation, where the contribution rate increases gradually over time, employees can steadily build their retirement savings without needing to take any additional action. These features have been shown to significantly boost retirement readiness, with research indicating that automatic enrollment can increase participation rates to over 90% in some cases [1].

In addition to these features, altering the plan type to one that offers lower fees and better investment options can also lead to improved outcomes. For example, shifting from a traditional mutual fund lineup to a plan with index funds or target-date funds can reduce the overall cost of investing. Lower fees mean more of the participants' contributions go toward growing their retirement nest egg, rather than being eaten away by administrative costs. Additionally, target-date funds, which automatically adjust the asset allocation as participants approach retirement, offer a simple, yet effective way to manage risk over time. These funds help participants avoid common investment mistakes, such as failing to rebalance or being overly conservative too early [2].

Another important consideration is the alignment of the plan’s investment options with the demographics and preferences of the participants. For instance, younger employees may benefit from plans that include higher-risk, higher-reward investment choices, whereas older employees might prefer more stable, income-focused options. By offering a diverse range of investment opportunities, employers can cater to the varied needs of their workforce, potentially leading to better individual and collective outcomes [3].

Moreover, employers can consider restructuring the plan to include financial wellness programs that educate employees on topics like budgeting, debt management, and retirement planning. These programs can empower participants to make informed decisions about their contributions and investments, which in turn can lead to better financial outcomes. Studies have shown that employees who participate in financial wellness programs are more likely to increase their savings rates and feel more confident about their financial future [4].

In summary, altering the plan structure or type can have a profound impact on participant outcomes by enhancing participation, reducing costs, and offering better investment choices. When these changes are thoughtfully implemented, they can set participants on a path to a more secure financial future.

References:

[1] Beshears, J., Choi, J. J., Laibson, D., & Madrian, B. C. (2009). The impact of employer matching on savings plan participation under automatic enrollment. Quarterly Journal of Economics, 124(4), 1303-1344.

 [2] Munnell, A. H., & Sundén, A. (2004). Coming Up Short: The Challenge of 401(k) Plans. Brookings Institution Press.

 [3] VanDerhei, J., & Copeland, C. (2011). The impact of automatic enrollment in 401(k) plans on future retirement accumulations: The role of income, age, and automatic escalation. Employee Benefit Research Institute.

 [4] Clark, R. L., & d’Ambrosio, M. B. (2008). Adjusting retirement goals and saving behavior: The role of financial education. Research on Aging, 30(4), 463-487.

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