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How a Company with 99% 401k Participation Rates Cut Loans and Withdrawals by 50%

With high 401k participation rates, company is challenged with high loan and hardship withdrawal rate and low deferral rate.

Recently we sat with a Vice President of Human Resources for a medical research and care facility in Baltimore, Maryland who attended a Plan Sponsor University (TPSU) program at Loyola University. The company has approximately 2600 employees and reports a 99% enrollment in it 401k plan.

While the plan employs an auto-enrollment strategy and makes a matching contribution to participant plans, the Sponsors says that getting participants to increase their deferrals beyond the 3%-5% level has been a challenge due to a soft economic climate. The company also employs an auto-escalation policy, but says that employees are slow to keep pace with escalating the contribution levels.

The company is responding to this sluggish take-up in the employee deferral rate by restructuring the deferral rate ceiling to 12% and adjusting (stretching) the employer match format so that employees will continue to defer to higher level of participation.

Among the biggest challenge for the company plan is participant education and financial wellness training. Particularly, he says that employees have a high incidence of drawing loans against their 401k plan which he feels is diminishing the plan’s effectiveness for individuals.

As a result, the company has instituted a policy of allowing only one loan at a time per participant and has also tightened the requirements for hardship loan withdrawals. With regard to hardship withdrawals the company has instituted a 6 month suspension of participation from the plan for those who are granted a hardship allowance for a withdrawal.

The rationale behind the suspension is that when a participant falls into the technical definition of financial hardship, it is likely a structural financial issue that may take time to recover from and further contributions to a plan may inhibit that financial recovery.

Prior to instituting the loan and hardship withdrawal policies, the company estimates that almost 30% of participants took loans or made hardship withdrawals compared with 15%-20% who did so after the policies were tightened.

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Timothy Kelly

Tim Kelly is the Founder of ForexTV. Since its inception in 2003, ForexTV has been a global leader in forex news and has expanded its news coverage to multiple industries. ForexTV is now one of the most recognized brands in global financial news. Mr. Kelly was also the creator and founder of Retirement Intelligence.

Mr. Kelly is an expert in online marketing, search engine optimization, content development and content distribution. He has consulted some of the top brokerages, media companies and financial exchanges on online marketing and content management including: The New York Board of Trade, Chicago Board Options Exchange, International Business Times, Briefing.com, Bloomberg and Bridge Information Systems and 401kTV.

He continues to be a regular market analyst and writer for ForexTV.com. He holds a Series 3 and Series 34 CFTC registration and formerly was a Commodities Trading Advisor (CTA). Tim is also an expert and specialist in Ichimoku technical analysis. He was also a licensed Property & Casualty; Life, Accident & Health Insurance Producer in New York State.

In addition to writing about the financial markets, Mr. Kelly writes extensively about online marketing and content marketing.

Mr. Kelly attended Boston College where he studied English Literature and Economics, and also attended the University of Siena, Italy where he studied studio art.

Mr. Kelly has been a decades-long community volunteer in his hometown of Long Island where he established the community assistance foundation, Kelly's Heroes. He has also been a coach of Youth Lacrosse for over 10 years. Prior to volunteering in youth sports, Mr. Kelly was involved in the Inner City Scholarship program administered by the Archdiocese of New York.

Before creating ForexTV, Mr, Kelly was Sr. VP Global Marketing for Bridge Information Systems, the world’s second largest financial market data vendor. Prior to Bridge, Mr. Kelly was a team leader of Media at Bloomberg Financial Markets, where he created Bloomberg Personal Magazine with an initial circulation of over 7 million copies monthly.
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