The deferral rate is important as to plan health

April is near my birthday and it’s the month of my annual physical. The nurse draws blood and the lab will run through a number of diagnostics that are great arbiters to my health.

While the past 11 years, 401(k) plan sponsors have been concerned with cost since mandatory fee disclosure, I think there is one diagnostic that they should focus on and rarely do. The diagnostic is the deferral rate of non-highly compensated employees. If it’s low, that means the plan might fail ADP deferral testing. If it’s low, it also means that plan participants aren’t engaged or overwhelmed with signing up for the plan. It also may mean that employees are paid too low and outside of raises, which might not be possible to change.

In the 1970s, people were told to know their blood pressure. In the 1980s, it was blood cholesterol. Today, I think analyzing Vitamin D is important.  Unlike health, it’s easier to focus on what’s wrong and I think plan sponsors should know what the deferral rate is for their lower-paid employees.

Story Page
%d bloggers like this: