In the war against employee attrition, a 401(k) has always been a powerful tool. So why are so few employees today taking advantage of this lucrative investment option?
Back in 1960, 30% of the full-time labor force was covered by a pension plan. The number of individuals with pension plans rose steadily until the early 1980s, until this percentage slowly declined from 1984 to present day. Today’s retirement-minded individual generally has to plan on their own with the 401(k) or IRA being the two most popular investment/retirement planning options in use today.
But let’s consider this phenomenon if you’re on the other end of the equation. If you’re the employer, how do you get your employees to take advantage of your business’ 401(k) program and is there a benefit if they do? Let’s explore how to increase employee participation and why it can help your business in the long run.
Does employee participation in your 401(k) help your business?
If you can boost employee participation rate in your company’s 401(k) plan, you may see some tangible benefits for your business. Such as:
- Greater employee retention and less turnover due to employees seeking other positions in the industry, especially if your 401(k) plan has a vesting period that prohibits full ownership of company contributions for a period of time.
- A more engaged workforce, especially if you take the time to fully educate your employees on the benefits of a 401(k) or other company-sponsored investment option. If the employees feel that you have their best interests in mind, they’ll be more likely to be productive at work.
- Employees may also work longer, especially if a pension isn’t an option, since the amount that can be added to a 401(k) during the last few years of an individual’s career is often quite staggering (thanks, compound returns!).
How can you boost employee participation in your 401(k) plan?
Auto-enrollment: In 2006, the federal government began allowing companies to auto-enroll new employees in their 401(k) plan, as long as the worker has the right to easily opt-out of the program. But instead of doing what most companies do – enrolling at the lowest savings rate possible – auto-enroll your new employees at 6, 8, or even 10% of pre-tax earnings. This will establish that a high savings rate is a smart strategy, instead of condoning a 1 or 2% rate as the default.
Create an Intelligent Match: The “employer match” is the hallmark of the 401(k) program today, but don’t throw money at your employees like some companies do. For example, many businesses match dollar for dollar up to 3, 4, or even 6%. Instead, create a lower value match that will continue beyond the single-digit savings rate. For example, match your employee’s contributions at 25% up to 12% of earnings, instead of 100% on 3% of earnings. You’ll see employees saving a lot more money and they’ll effectively share the savings burden with you.
Simplify the Process: Auto-enrollment is great, but if most employees choose to opt out right away, it defeats the purpose. Instead, create simple, easy-to-use tools that can increase awareness and engagement with the 401(k) plan. For instance, a monthly email that has a link to the employee’s own retirement account can serve as a reminder of its importance. Once on the site, the employee should be able to press a series of buttons that will automatically calculate how much they’ll have for retirement if they choose to contribute a range of different percentages.
Highlight 401(k) Investing: Create an open conversation around investing and planning for retirement. Show your employees they are important to you and that planning for the future is something that should interest them. In addition to a presentation, leave time for questions. Turn it into a lunch-and-learn opportunity for your employees rather than another meeting they have to fit into their day.
There are several ways to encourage saving and investing through your company-sponsored investment plan, but take it slowly. It isn’t something that will be “fixed” overnight, and it sometimes takes a little time to create new habits and activities among your employees. Start by showing them how a little saved now can add up to a lot for retirement down the road.
At American Bullion, we specialize in rolling over qualified 401(K) into physical Gold IRA. If you are looking to diversify your portfolio with physical precious metals, please request free Gold IRA Guide.
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