Offering a 401(k) plan is a significant benefit for employees, and many consider it a standard perk when looking for a job. However, plans are not one-size-fits-all, and structure and guidelines are a big factor when encouraging employees to participate. Things like salary, age, matching contributions, and education all impact participation and can make or break success for both employers and employees. So how do you boost employee participation in your 401(k) plan?
As an employer, you would want to increase participation in your company 401(k) plan for several reasons. For one, offering a 401(k) plan can be a valuable tool for attracting and retaining talented employees, as it demonstrates a commitment to their long-term financial well-being. Additionally, having more employees enrolled in the plan can lead to higher overall plan balances, which can result in lower administrative fees and better investment options for everyone involved.
From an employee perspective, participating in a 401(k) plan can provide a variety of benefits, including the opportunity to save for retirement with pre-tax dollars, potential employer matching contributions, and the ability to choose from a range of investment options. It can also help employees feel more financially secure, which can lead to improved job satisfaction and productivity.
There are factors that can make a plan offering a failure or a success, but with proper education, plan structure, and unique benefits, you can enhance employee retention and stand out amongst competitors. Read below to learn more about boosting employee participation in your 401(k) plan.
Provide 401(k) Education Tools
Retirement plans can be confusing, which is why it’s important to educate your employees on the benefits of participation, as well as equip them with the tools they need to successfully save for the future.
The first step is having educational material that employees can easily reference. Include a package summary in new hire materials and offer enrollment meetings or webinars to address questions or concerns. Being transparent about the plan is helpful, but providing a space for individualized help can make an employee feel more confident about their decisions.
In addition, hiring a benefits counselor or financial advisor is helpful. Whether that person works internally or externally, having a contact for employees to speak to about their plan and contributions is a good idea. Consider hosting monthly or quarterly meetings and seminars with the specialist, providing an opportunity for employees to ask questions and learn collectively. By offering ample opportunities for employees to learn, they should start to feel more comfortable and confident with planning for retirement on their own.
Offer 401(k) Match
Who doesn’t love free money? Offering a 401(k) match is a great way to incentivize employees to participate, especially if income is a limited factor for the participant. Without discretionary income, it may be hard for employees to carve out extra money for contributions, but attaching a match to the plan can help them enhance savings and encourage retention.
Many employers offer a 3-5% match, but the percentage is up to you and the plan provider. In addition, when a match is offered, many companies include caveats such as length of employment. For example, matching contributions may not fully vest until the employee reaches a specific number of years in service. Another option is to offer tiered vesting schedules, so the employer funds vest in small increments over time. The structure is ultimately up to you, the employer, but plan providers can help guide the structure as well. Learn more about 401(k) matching.
Remove Waiting Periods
Another factor that can increase participation is the enrollment period. Some companies require employees to serve a specific amount of time with the company before they’re eligible for benefits. By removing this boundary, employees may invest in the plan earlier in their careers and start saving more money.
Added benefits like an employer match and plan education support this incentive. The sooner a participant learns about the plan and can start contributing funds, the better plan participation rates are, and the more income employers are able to write off as tax benefits.
Finally, automatic enrollment can be a huge incentive. When giving employees the opportunity to participate, fewer may choose to opt-in, whereas enrolling them automatically upon employment creates an extra step for them to consider whether it’s worth opting out or staying in. In most cases, the employee will likely choose to remain enrolled because it’s less work, the decision has already been made, and the benefit activated.
Educating employees in their automatic enrollment is another important factor for success. If you automatically enroll them, you can either have a standard enrollment percentage (that is adjustable, of course) or ask employees to simply choose their contribution percentage up-front. Either way, you are creating fewer steps for the employee and making the decision easy and stress-free, hence increasing the likelihood of employee participation in your 401(k) plan.
To learn more about 401(k) plan offerings, visit our employer page.