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Flexing on plan design features can help improve outcomes for lower income workers.

Depending on the nature of your business and the varied experience, education and expertise required of your workforce, you may have a significant population of lower income workers. The Defined Contribution Institutional Investment Association defines low income as $20,000 - $47,500 in annual household income. In a highly competitive hiring environment, the following plan design ideas make great sense for attracting and retaining workers. By adding just a little flexibility to better accommodate your lower income workers, everybody wins.

Automatic Features

Research from the Program on Retirement Policy at the Urban Institute in Washington, DC, shows that the best way to get lower-income workers to participate in a plan is to automatically put them in the plan. At the same time, plan sponsors must also consider the effect on lower-income workers if it is paired with automatic escalation. Setting the automatic deferral and auto-escalation rates too high can be particularly harmful to lower-income workers, who make their deferrals from lower earnings.

One tactic employers can use to help lower-income workers save is to defer part of their pay raise automatically into the retirement plan, rather than straight into their paycheck. These workers may not necessarily feel like they’re losing out on something, because they still get a slight bump up in their salary, while also getting a bump up in their retirement savings.

Adjusting the Match to Encourage Higher Deferral Rates

Employers and their advisors often adjust the plan’s match rate to encourage higher deferral rates. The Program on Retirement Policy’s research shows that participants often defer up to the maximum rate required to receive the full match. The higher the level at which the match ends, the more this can get people to contribute. However, plan sponsors wanting to increase lower-income workers’ retirement savings by tweaking the match must remain sensitive to setting the threshold so high that they price these workers out.

Combining a Financial Wellness Program With an Emergency Savings Program

The DCIIA’s Retirement Research Center in Boxford, Massachusetts recommends offering a financial wellness program combined with an emergency savings program. Offering this tandem emphasizes the importance of having sufficient savings to cover emergencies and is the most powerful tool available for lower-income participants. Findings from the Life Insurance Marketing and Research Association show that almost 30% of lower-income workers have no emergency savings fund, which can lead them to not save, or to withdraw money from their retirement accounts. Funding an emergency savings account can give lower-income employees a sense of feeling in control and more security about their day-to-day experience. That’s a great foundation to build before beginning a long-term retirement saving program.


Disclaimer: Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it. Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.