A “legacy” retirement plan is a plan that hasn’t materially changed for a substantial number of years. Such a lack of plan evolution can interfere with the very goals the plan was originally designed to achieve. For years, many employers have relied on the adage, “If it’s not broken, don’t fix it.” But, when it comes to retirement benefits, what worked in the past may now be hampering participants’ retirement readiness and decreasing the company’s appeal.
Legacy plans were built for a time when most people spent their entire careers with one employer. Today’s workforce is very different. People are far more mobile, often switching jobs every two to four years to pursue better opportunities, career growth or work-life balance. It’s also more diverse than ever, spanning multiple generations, each with its own priorities, career paths and cultural perspectives. Many of today’s employees are also managing significant financial pressures, from paying off student loans to supporting aging parents and/or young children. When your plan design doesn’t reflect these realities, employees may find the plan doesn’t truly support their needs, leading to lower engagement and missed opportunities to build long-term financial security.
In today’s competitive hiring market, an outdated retirement plan can make it harder to attract and keep top talent. Legacy designs frequently exclude options like Roth or after-tax contributions, even though younger and higher-paid employees often value the accompanying tax diversification as part of their long-term strategy. A plan lacking these features, along with rapid plan eligibility, student loan repayment support and financial wellness tools, can leave employees stuck with a tax-inefficient retirement savings strategy. For business owners, this gap can send a message that the company’s culture and benefits are outdated, making it more difficult to hire and retain key people, especially younger professionals and high-caliber candidates who expect more from their benefits package.
Many legacy retirement plans were designed with the narrow focus of retirement savings alone, with little or no consideration for the broader financial realities employees face today. As a result, they often lack features like emergency savings accounts to provide a financial safety net, auto-rollovers to prevent small balances from being cashed out when employees change jobs and varied investment options that align with their personal values. Yet, these are exactly the kind of options today’s workers find desirable. Some are looking for such tools to be included in the retirement plan to help them manage their finances now while building wealth for the future. Without them, today’s employees may feel that their financial needs and priorities are being overlooked, leading to behaviors that undermine retirement readiness or disconnecting from the plan altogether. Over time, an antiquated plan can turn what should be a valued benefit into an underutilized and underappreciated resource.
