How to Encourage Employee Participation in Your 401(k)
The number of workers failing to prepare for retirement is only growing, with millennials participating less than previous generations. Part of an organization’s fiduciary process includes encouraging workers across all age groups to invest in their future, but unfortunately, that isn’t always easy. If you’ve set up a 401(k) for your company, here are a few things you can do to boost enrollment.
Implement Auto Enrollment
Research has demonstrated that auto enrollment is undeniably the most effective method to increase employee participation. In a study on the impact of automatic enrollment on savings incomes, there was a sizable 50 percent increase in new employee participation. However, the default contribution rate plays a role as well. Under auto enrollment, contributions are higher when there is as a generous contribution rate, and many plans now include auto escalation provisions that increase contributions at 1 percent a year up to a predetermined maximum. Overall, auto enrollment combined with a high contribution rate is a powerful tool to increase employee participation.
Make Enrollment Easy
Employees may immediately opt out, and it’s important that it’s easy for them to opt back in. If your plan has a waiting period, you’ll likely lose more employees than if enrollment is available during the onboarding process. Make sure your HR representative can explain the plan in colloquial terms to make it appealing to new hires, and strive to make signing up as easy as possible for employees who may feel uncomfortable. If possible, don’t overload them with a large amount of information or too many options.
Ask yourself if your retirement seminars are effective. Employees may get excited, but will they actually join as a result? Instead, focus on providing personalized retirement counseling for interested employees, as well as regularly sharing information about your plan via email or your office newsletter. Again, avoid overloading them with information they may not understand; rather, focus on sharing that the plan is available and signing up is easy.
Helping employees plan for the future should be an important part of your fiduciary process. As new employees complete paperwork, take the opportunity to talk to them about your 401(k), and encourage them to save themselves time later on by doing everything at once. Ensure your plan is one that employees are excited about joining. When you find a way to make your plan easy to understand, it will sell itself.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.