It can be difficult for a 25-year-old to envision life after age 65, let alone to start saving for it—and many young people aren’t even sure how or where to start. That’s why it’s important for employers to take an active role in educating employees at every stage of life about the benefits of retirement savings plans.
401(k) retirement plans can be an automatic and fairly painless way for employees to save pretax dollars for the future. They promote good will between employees and employer, create a culture of financial wellness, and help to attract and retain the best talent.
The Who, What and How of a 401(k)
When selecting a plan for your organization, it’s important to keep the following factors in mind:
- What will the 401(k) retirement plan cost to implement?
- What percentage of the employee’s contribution will the organization match?
- What resources will the 401(k) retirement plan require in order to set up and manage it?
- What types of investment options are available within each 401(k) retirement plan and what is an appropriate mix?
- How will the 401(k) retirement plan fit into the employee’s overall compensation package?
- How can you use your 401(k) retirement plan to attract and retain the best talent?
A high employer contribution match is always helpful in encouraging employees to participate, however, specific and targeted messages and advice about the company's 401(k) plan can also help employees with the decision. Employees will appreciate their benefits even more when they understand their value, so organizations should offer programs that support financial literacy.
Alan Hahn, a partner in the Benefits & Compensation Group at Davis & Gilbert LLP in New York City, said in a September 2014 Fiduciary News article, “Think about the most important thing that helps employees save for retirement. It’s the simple act of getting enrolled in the plan and starting to save. Getting employees engaged so they understand the value of saving, and then giving them the tools to get there.”
The SHRM online article Employers Look to Enhance 401(k) Investment Designs by SHRM writer and editor of online content, compensation and benefits, Steve Miller reports that “With millions of workers now relying on 401(k) plans as their primary retirement savings vehicle, U.S. employers are enhancing the investment structures of those plans, according to a new survey by Towers Watson. This includes implementing custom target-date fund (TDF) solutions and outsourcing all or portions of a company’s 401(k) plan oversight. In addition, many plan sponsors are beginning to embrace more complex and sophisticated strategies—like the stretch match— and structures as the challenge of meeting participant and plan needs increases.”
On the Horizon
There are two big issues on the horizon that will affect 401(k)s, and employers should take note so they can plan accordingly.
This summer’s Supreme Court ruling in Tibble v. Edison means that an employer is now liable for an insufficient oversight of its 401(k) plan with high-fee funds.
Additionally, the Department of Labor’s proposed fiduciary rule would require that only fiduciaries provide participants with investment advice. Most mutual fund representatives are not fiduciaries, so this could limit advice from plan providers, or require employers to pay for fee-based advisors.
What are you doing to promote retirement savings in your organization?
Please join @shrmnextchat at 3 p.m. ET on August 26 for #Nextchat with special guest, SHRM writer and editor of online content, compensation and benefits, Steve Miller (@SHRMsmiller). We’ll chat about how organizations are modifying retirement plans to keep up with trends and encouraging employees to learn about and participate in them.
Q1. How do you encourage employees to participate in your organization’s 401(k) retirement plan?
Q2. 401(k) match formulas can vary greatly. What match formula does your organization use, and why?
Q3. What are the most common questions you receive from employees regarding your organization’s retirement plan?
Q4. What tools and educational opportunities do you provide employees to make wise retirement investment decisions?
Q5. Does your retirement plan provide auto enrollment and auto escalation? Why or why not?
Q6. What sophisticated or complex retirement plan options are employees requesting? Brokerage windows and managed accounts?
Q7. What percentage of your employees take out loans or hardship withdrawals, and what to you tell them about the consequences?
Q8. Do you provide investment advice to participants; if so, through the 401(k) administrator or an independent advisory firm?