Nearly 40% of Millennials feel that they are distracted at work by their personal finances, and they report spending three hours per week at their desk dealing with these personal issues. As a business owner, providing the benefit of a 401(k) is a great way to build company culture and help your employees feel less stressed about their finances. But what happens when the 401(k)-participation rate is not as high as you had hoped it would be? For many reasons – financial, personal, or even just educational – this is often the case.
If you are struggling with getting your employees to make the most of their benefit and start contributing to their 401(k)s, here are a few tips to help get your team more engaged.
Automatically Enroll Everyone into the Plan
If your 401(k) plan requires that employees have to opt-in, it is more likely the case that such friction deters some employees from enrolling. Even if your plan provides a match, there will still be employees that do not enroll simply since it takes too much work to opt-in. This is human nature and there is an easy way to overcome it.
Instead of requiring your employees to opt-in, make it so that all employees are automatically enrolled into your 401(k) plan (they can still opt-out if they choose to). By doing this, you have eliminated the biggest hurdle. In fact, according to Vanguard’s How Retirement Saves 2018 report, employee predication increased to 92% in plans offering auto-enrollment, versus 57% participation in plans that don’t have this feature.
Provide a Matching Contribution
A matching contribution is free money, and for anyone that is hoping to build up their retirement accounts, this should be a huge incentive to start contributing to their 401(k). In addition to that, providing a match is a great recruiting tool for offering benefit packages in such a competitive landscape.
While we would think that providing a match would be an automatic reason for all employees to start participating, it is important that you educate your employees on your match, what it means, the amount, and how to earn it.
Take Steps to Increase Deferral Rates
Even if you set up automatic enrollment and provide matching contributions, it is also vitally important to monitor the deferral rates that your employees end up selecting. If your employees’ deferral rates are low, they are missing out on contributing to their retirement accounts and potentially taking in a full match.
Explain the 401(k) in Terms That Everyone Can Understand
Whether it be in a more formal conference, meeting, or seminar, it is important that all of your employees are able to wrap their heads around the 401(k) program that you are offering. Not every employee is familiar with investing, saving, and contributing to a retirement account. This is especially true for new or younger employees.
Survey your team to understand how they want to digest this information. Maybe some prefer online or group settings, while others might be more engaged with a one-on-one discussion.
Offer Informational Seminars or One-on-One Advisors
In addition to the initial informational announcement or explanation of your 401(k) plan, you should also consider offering ongoing training seminars and one-on-one sessions with a retirement specialist (or advisor). There are plenty of small companies that offer their employees financial wellness services which will certainly include answers regarding retirement planning. This is a great culture benefit that would also differentiate your firm with how they take care of their employees.
If you are going to move forward with one-on-one education, it is important that you find someone that you trust and is providing advice that is in the best interest of your employees. As an employer, you can make the decision to pay for the additional one-on-one consulting sessions with your employees or decide that you want your employees to pay for that additional service. If nothing else, ask your retirement plan advisor to provide a seminar for your employees that can go deeper into retirement planning.
Make It Easy To Take Action or Make Changes
To achieve a high 401(k) participation rate, it is critical that it be easy to make changes and take action. Most of this comes down to the provider that you use and their user experience with their client portal. Almost everything should be internet-based and/or app-friendly, so when considering your provider options, always look for that so that your employees have a great experience navigating through their online portal. In addition, you can always ask the providers that you are considering what it takes for employees to opt-in, opt-out, or make other changes. If their answers involve printing physical paper, getting notarized signatures, or anything else that takes extra effort, they may not be a good fit as your employees will be less likely to take those actions.
Take the Next Step
401(k)s are a valuable benefit for employees, and a high participation rate is important for any firm, big or small. We hope that the tips above can help you get your employees to start contributing more to their 401(k)s. If you need additional advice or have questions, you can reach us by calling (844) 377-4963 or emailing Fifirstname.lastname@example.org. You can also book an appointment online here.
Sean Condon is a wealth advisor with more than a decade of industry experience. He specializes in helping entrepreneurs build a culture of financial confidence by offering their employees unprecedented access to a CERTIFIED FINANCIAL PLANNER™ professional. Taking an owner’s approach, Sean does his best to understand the many elements of his clients’ entrepreneurial journeys. He works in a technically competent and caring manner to reduce his clients’ anxiety about money issues and serves as a fiduciary by always putting his clients’ best interests first. Learn more about Sean by connecting with him on LinkedIn.
Information here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed. The data above is based on current laws that may change.
Fi-care is a service offered by Windgate Wealth Management, a business line of Perritt Capital Management, Inc. Perritt Capital Management is a registered investment advisor. ADV documents are available upon request.
First published December 2018.
Source: PWC Employee Financial Wellness Survey, 2016.