We recently discussed automatic features that can help your employees create a paycheck for life. Today, we’re going to switch gears and discuss the stretch match and courageous plan design.

Courageous plan design requires that you, the plan sponsor, make a greater commitment than offering great investments at an affordable cost.

The truth is that your employees aren’t saving enough money for retirement. They need an incentive in order to do so. Your employees should be saving about 10%. So, you need a way to have your employees deposit 10% of their paycheck in order to get the total company match.

“The stretch match is a win-win situation for you and your employees.”

For example, let’s say a company has a 3% match, with 50 cents on the dollar for the first 6%. Employees at these companies contribute 6% and no more. Why? They don’t think it’s worth it to invest more money. That is simply their mindset.

If that company changes their match to 50 cents on the dollar for the first 2% and 25 cents on the dollar for the next 8%, the employees will be more motivated to put in 10% of their pay to receive that full 3% employer contribution.

It’s a win-win situation for you and your employees, as they now have the 10% contribution necessary to create a paycheck for life.

Next time, we’ll discuss safe harbor continuations and how they allow you and your employees to contribute the maximum amount allowable under the government into your retirement plan.

Meanwhile, if you have any other questions, give us a call or send us an email. We would be happy to help you!

(Securities and advisory services offered through FSC Securities Corporation, member FINRA/SIPC. Michigan 401(k) and Financial Independence are marketing names.)