At Twelve Points, we were approached by a general contracting company struggling with managing its 401(k) plan. The company’s existing plan was outdated and caused numerous costly issues for the business. Complicating matters, an ownership transition was taking place.
In the case study below, we’ll explore how our team helped this company redesign its 401(k) plan to fit the needs of the new ownership structure, streamline HR processes, reduce compliance risks, and improve employee participation.
The Challenge
When we were approached by this general contractor, their business was in the midst of an ownership transition. The company had a 401(k) plan, which had been under the same advisor for years. However, the plan no longer suited the evolving needs of the business.
HR was frustrated by the antiquated system for uploading contributions to the plan. These manual processes led to high administration costs and inefficiencies.
The plan was also failing annual nondiscrimination testing. Each year, the IRS requires testing for 401(k) plans to ensure that a plan is not disproportionately benefiting highly compensated employees over rank-and-file employees. Due to how this general contractor’s plan was set up, the company was failing these tests every year, resulting in costly penalties and returns and an inability for the leadership team to actually save for their own retirement.
Further, the 401(k) plan was being underutilized. Participation rates were low, hovering around 45% due to a lack of employee education. The company’s previous advisor primarily focused on personal wealth management rather than running retirement plans. This left the company with a reactive, rather than proactive, retirement plan strategy.
Our Approach
At Twelve Points, we take a comprehensive approach to optimizing a business’s 401(k) plan. The first step to help this general contractor involved a detailed business evaluation. We assessed the company’s goals, existing challenges, and the effect the ownership transition would have on the business’s retirement plan needs.
With a broad understanding of the challenge, we then worked closely with HR to understand their pain points. We discussed the manual processes involved in contributions. We worked through what was causing their plan to fail IRS nondiscrimination testing and did a deep dive into the lack of employee engagement.
In this situation, we recommended a revamp of the business’s 401(k) plan. We structured a new plan that would allow for a smooth ownership transition and implemented a safe harbor match to ensure compliance with annual testing. Our strategy also improved the integration between payroll and the 401(k) plan and included an employee education program to help boost engagement.
The Results
The changes we helped this general contractor implement had a significant impact on the business. For starters, HR saved valuable time due to the improved integration between payroll and the 401(k) plan.
The implementation of a safe harbor match into the new plan also ensured compliance with annual testing. This reduced the company’s costs in fees and refunds. Money was saved due to better plan management and improvements in the overall financial health of the plan. Senior leadership was also now able to get on track for retirement by making their maximum annual contributions without fear of refunds.
Most notably, employee participation rose dramatically. After introducing an employee education program, the company saw participation rates increase from 45% to nearly 100%. Employees are now more engaged in their retirement planning, leading to higher employee satisfaction and retention.
The Twelve Points Difference
The general contractor above was referred to Twelve Points by another construction firm. They recommended our team for two key reasons:
- We have extensive knowledge of the construction industry, making us an ideal business advisor to guide them through this transition.
- We are an independent firm, which means that we offer personalized, hands-on service. We take the time to provide proactive, highly detailed financial planning and 401(k) solutions.
If your construction business needs to overhaul your 401(k) plan, contact our team to book a consultation. We will work with you to build a customized strategy that meets the needs of your business and your employees.
