Most people know it’s smart to save money for those big-ticket items we really want to buy – a new television or car or home. Yet they may not realize that probably the most expensive thing they will ever buy in their lifetime is their…retirement. Financial fitness means feeling confident and secure about your financial situation – managing money in a way that allows you to meet not only current needs but long-term goals as well.

How do your employees manage all these financial challenges and at the same time try to “buy” a secure retirement? As an employer, what can you do? Here are some ADP TotalSource Retirement Savings Plan (the “Plan”) design features that may help your employees turn their dreams into reality.

Auto enrollment

Employees may find themselves overwhelmed or confused by all the information available to them about the Plan. Automatic enrollment can help avoid such confusion, while increasing your company’s participation rate.

How does it work? When an employee becomes eligible, they are automatically enrolled in the Plan unless they actively choose to opt out; this automatically deducts a set percentage of their paycheck to contribute to their Plan account, with the option for them to adjust their contribution amount. You, as the employer, set a default contribution rate (minimum 3%) that will be applied to all employees unless they choose to change it.

Upon enrollment, employees will be defaulted into one of the Voya Target Solution Trust Funds¹. These options are based upon a participant’s date of birth and an estimated retirement age of 65. Younger participants will follow a more aggressive growth-oriented investment strategy. As participants age, the investment strategy of the option they are invested in will become more moderate as they near retirement, ending with a conservative strategy.

Auto escalation

Adding auto escalation to the Plan can help your participants build their retirement savings by gradually increasing contributions over time. It helps employees save more than they would on their own and they don’t need to remember to make or increase contributions until they reach the auto escalation cap.

How does it work? The automatic deferral rate increase will be equal to 1% and will be effective each anniversary date. Each year thereafter, the deferral rate is automatically increased by 1% up to 15% of eligible compensation. Eligible participants may opt out of the automatic deferral increase or elect another percentage to be deferred into the Plan at any time.

Employer contributions

Employers often wonder if they should offer 401(k) matching contributions to their employees and, if so, how much. There isn’t one right answer, but here are the top three reasons you should consider adding it: 

1. Attract and retain good people. Your employees are your most valuable resource.  And giving them top-notch, thoughtful benefits that includes an employer match (or other employer contribution), is a great way to ensure they’re happy, remain loyal to your company, and are engaged in the company’s success.

2. Tax benefits. Employer contributions are deductible on the employer’s federal income tax return. The great news is a company can deduct up to 25% of all participants’ compensation².

3. Simplify compliance. Employer contributions may help simplify compliance by helping your Plan pass annual nondiscrimination testing and encourage balanced employee participation. Better yet, your Plan can automatically meet compliance testing requirements by offering one of the following Safe Harbor plan provisions:
   • 3% non-elective contribution for all eligible participants or with an HCE exclusion³ (regardless of whether they contribute); made per pay period or year end.
   • An employer matching contribution of 100% of the employee’s deferral up to 4%, 5%, or 6% of eligible compensation; made each pay period.
   • An employer matching contribution of 100% of the employee’s deferral on the first 3% of eligible compensation, plus 50% of the employee’s deferrals that exceed 3% but do not exceed 5% of eligible compensation; made each pay period.

Additionally, employer contributions help prevent plans from becoming “top-heavy,” minimizing the need for complex compliance measures and supporting a fair, accessible retirement plan for all employees.

Having a Plan that aligns with your business goals and supports your employees’ financial futures requires careful consideration. While there is no “right” answer, understanding plan design features can help you offer a retirement plan that benefits both your employees and your business. In addition to potentially enhancing your employee retention and providing valuable tax advantages for your company, you can help your employees build confidence and be more financially fit.

There is no assurance that increasing contributions will generate investment success, as systematic investing does not ensure a profit nor guarantee against loss. Participants should consider their financial ability to continue investing consistently in up as well as down markets.

1. There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time, including the target date. The “target date” is the approximate date when an investor plans to start withdrawing their money. When their target date is reached, they may have more or less than the original Voya Target Solution Trust (the “Trust”) amount invested. For each target date Trust, until the day prior to its target date, the Trust will seek to provide total returns consistent with an asset allocation targeted for an investor who is retiring in approximately each Trust’s designation target year. The target year is specified in the Trust’s name. For example, the Voya Target Solution 2045 Trust bears an asset allocation that the investment adviser believes balances the risk and return objectives of the “average” investor who will be retiring in the year 2045. Prior to choosing a Target Solution Trust, investors are strongly encouraged to review and understand the Trust’s objectives and its composition of stocks and bonds, and how the asset allocation will change over time as the target date nears. No two investors are alike and one should not assume that just because they intend to retire in the year corresponding to the target date that a specific Trust is appropriate and suitable to their risk tolerance. It is recommended that an investor carefully consider the possibility of capital loss in each of the target date Trusts, the likelihood and magnitude of which will be dependent upon the Trust’s asset allocation. On the Target Date the Trust’s investment objective will be to seek to provide a combination of total return and stability of principal consistent with a low to moderate risk asset allocation which is targeted to the “average” retiree.

   Participation in a Collective Trust Fund is limited to eligible trusts that are accepted by the Trustee as Participating Trusts. Eligible trusts generally include (i) certain employee benefit trusts exempt from federal income taxation under Code Section 501(a); (ii) certain governmental plans or units described in Code Section 414(d), Code Section 457(b), and Code Section 818 (a) (6); (iii) certain commingled trust funds exempt from federal income taxation under Code Section 501(a); and (iv) certain insurance company separate accounts as defined in the Investment Company Act section 2(a) (17). Neither the fund nor units of beneficial interest in the Fund are registered under the Investment Company Act of 1940 or the Securities Act of 1933 in reliance on an exemption, under these acts applicable to collective trust funds maintained by a bank for certain types of employee benefit trusts.

   A collective fund is not a mutual fund; the collective investment trust fund is managed by Voya Investment Trust Co. There is no guarantee the fund will achieve its objective.

2. Net earnings from self-employment must take the contribution into account. Compensation generally limited to $350,000 in 2025.

3. With this option, contributions can only be made at the end of the plan year.

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