By Jennifer S Kiesewetter Esq SPARK-ADP
The 401k contribution limits for 2018 have increased from 18,000 to 18,500, which is the first cost of living adjustment to deferrals since 2015.
On October 19, 2017, the Internal Revenue Service (IRS) announced 401k contribution limits for 2018, increasing them for cost of living adjustments from 18,000 to 18,500. While this change is not exactly monumental, it does give finance leaders an opportunity to discuss the importance of 401k plan saving with their employees.
Here are three things finance leaders should know in the wake of the deferral increase.
Finance leaders should take this opportunity to revise their current 401k plan communications by stating the benefits of participation, according to The National Law Review. Many employees are still not participating in or contributing to plans, or simply don’t understand them, states The National Law Review.
Enhancing and tailoring communications, such as adding on-line and mobile applications, podcasts and virtual meetings, can help employees learn more about their savings prospects.
Auto-Enrollment & Auto-Escalation
Finance leaders may want to revisit plan design. Currently, according to PlanSponsor, 65 percent of all retirement plans offer automatic enrollment, while 50 percent automatically escalate participants’ deferral percentages. JP Morgan Chase states that these automatic provisions must be implemented carefully so as not to “have unintended consequences,” such as resulting in “undesirable retirement outcomes,” cites PlanSponsor.
Encouraging employees to participate in and contribute to the plan, through communications or plan design, goes hand in hand with retirement readiness. According to PlanSponsor, 82 percent of employers state that they feel a “very high” or “somewhat high” responsibility for their workforce’s financial wellness, up from 77 percent in 2013. Being able to aid employees to increase investments through communication or plan design are two ways that finance leaders can take advantage of the current IRS adjustments.
Organizations today are putting more emphasis on 401k participation than even a few years ago. Although many employees may not be able to defer up to the new limit, the increase allows finance leaders to open the discussion with employees and amongst themselves about how to improve participation and contribution to their 401k plans — a conversation worth having.