It can be difficult for a 25-year-old to envision life after age 65, let alone to start saving for it—and many of your employees aren’t even sure how or where to start saving. That’s why it’s important for employers to take an active role in educating employees about the benefits of retirement savings plans.
The 401(k) and similar retirement plans can be an automatic and easy way for employees to save pretax dollars for the future. They promote goodwill between employees and employer, create a culture of financial wellness, and help to attract and retain talent.
The 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 and what do the various service providers offer?
- 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 the value of those benefits, so organizations should offer programs that support financial literacy.
Updating Your 401(k) Plan
The SHRM Online article Push 401(k) Default Savings Rates Higher, Researchers and Plan Sponsors Agree by Steve Miller, SHRM writer and editor of online content, compensation and benefits, reports, “Erring on the high side when choosing a 401(k) savings default-contribution rate won't likely discourage employees from participating in the plan,” as savings default rates of 7 percent to 10 percent (or higher) are increasingly common. Plan sponsors are also taking a harder stance on fees and stepping up their financial wellness programs.
Additionally, when employees leave a job, either voluntarily or through termination, many often leave their defined contribution accounts with their former employers. The SHRM Online article Keep Track of 401(k) Participants So They Don’t Go Missing reveals “increased job-hopping and frequently forgetting to update their contact details with previous employers are two reasons why participants in 401(k) and similar employer-sponsored retirement plans may ‘disappear.’ Creating a ‘missing-participant program’ can help plan sponsors comply with the requirement that they make sure former employees can access their savings.”
What are you doing to update, promote and protect retirement savings for your employees, and how are you providing information to help them make informed decisions?
Please join @shrmnextchat at 3 p.m. ET on April 25 for #Nextchat with special guest, SHRM writer and editor of online content, compensation and benefits, Stephen Miller, CEBS (@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. What are the most common questions you receive from employees regarding your organization’s retirement plan?
Q3. What tools and educational opportunities do you provide employees to help them make wise retirement investment decisions?
Q4. Does your organization’s retirement plan provide auto-enrollment and auto-escalation? Why or why not?
Q5. What sophisticated or complex retirement plan options are employees requesting (e.g., brokerage windows or managed accounts) and what new retirement plan trends are you implementing?
Q6. How do you prevent or keep track of “missing” participants in your organization’s 401(k) plan?
Q7. How do you provide investment advice to participants? If so, is it through the 401(k) administrator or an independent advisory firm?
Q8. How has your organization worked with or changed 401(k) service providers to help control fees?
Q9. What advice can you share with other HR professionals for setting up or administering a 401(k) plan?