A retirement savings account is one of the most valuable benefits an employer can offer. However, plan sponsors can sometimes struggle to effectively communicate a plan’s benefits to employees in ways that boost engagement and enrollment. So, how can you increase participation in your plan? Here are some things to consider. Making just a few of these changes can go a long way toward achieving your goal.
Boost Participation in Your 401(k) Plan
- Avoid information overload. It is the plan sponsor’s fiduciary duty to educate its plan participants about their options. Information should be delivered in modest-sized, more frequent communications to avoid information overload. Offering exhaustive seminars or extensive literature on your employees may overwhelm them, and in turn, may decrease plan participation rates. Instead of providing all the information upfront, only deliver the relevant materials as an employee moves through the enrollment process.
- Shorten or eliminate the waiting period for new employees to enter the plan. You will more likely get a new employee to enroll during their orientation meeting(s) when you have their full attention and can explain the benefits to them than when you are one year down the road.
- Offer a matching contribution. This can go a long way toward boosting participation rates. No one wants to leave money on the table and offering a match of a few percent can encourage plan participants to contribute at least up to this level. If a traditional employer match just is not enough to capture all eligible plan participants, consider adding a stretch match. This type of match encumbers the same amount of funds, but “stretches” the match to cover a larger swath of income. For example, an employer could offer a flat 3 percent match on all contributions or, instead, could match $0.50 per dollar up to 6 percent, or $0.25 per dollar up to 12 percent. By expanding the contribution range, an employer can encourage employees to stretch their own dollars to contribute a higher percentage of income to their retirement accounts.
- Provide loans and hardship withdrawal options. Many employees do not want to put money into a plan that they cannot get to in an emergency.
- Offer a Roth option. Not all employees are interested in boosting their pre-tax retirement savings. Offering a Roth option (i.e., giving employees the chance to contribute after-tax dollars to their retirement) can expand the scope of prospective retirement plan contributors. Roth contributions tend to particularly benefit earlier career contributors who take advantage of them over the course of their careers.
- Ensure that a broad range of investment options are available. It is no longer advisable to provide just three or four investment options. A good plan will provide from 10 to 15 options that are well balanced between index funds and managed funds, including target-date funds. However, remember that more than twenty options can create confusion and complexity.
- Demonstrate to the participants that you are monitoring the plan’s investment options. Provide them with regular reports that show net performance for each option against an appropriate index. Change funds that no longer meet the plan’s criteria for investment selection and communicate this to all participants.
- Provide an investment advice service. Or, offer one-on-one meetings to participants by a qualified financial advisor to help participants stay on track with their retirement goals.
- Provide daily internet access to asset and balance information. Allow participants to trade reasonably often. When an employee feels in control of their assets, they feel better about being a part of the plan.
- Hold 401(k) meetings quarterly. These are great opportunities to communicate plan benefits and features. Remember, you need to sell the plan and the more opportunities you give your employees to enroll, the more likely they are to join.
- Strongly consider automatic enrollment. Many employees tend to put off enrolling in a retirement account until after they have paid off certain debts, received a raise, or reach a certain age. However, for many, this never happens. Adopting an automatic enrollment feature and applying it across the board can work in your (and your employees’) favor. Instead of requiring employees to take a proactive step by enrolling in a retirement account, employees will be automatically opted in—ensuring that the only way to avoid contributing to retirement is by taking the proactive step of unenrolling. Typically, few participants choose to opt-out.
- Offer re-enrollment. Even with an auto-enrollment feature to help increase employee participation in your plan, there may be some employees who fall through the cracks, and there are new hires regularly. By holding an annual re-enrollment campaign, you will ensure that those who are eligible for (but have not yet enrolled in) your retirement plan are reminded of its many features and benefits.
- Provide an auto-increase feature. Many employees, particularly those who have been auto-enrolled in an employer’s retirement plan, tend to take a “set it and forget it” attitude toward retirement contributions. By offering employees an auto-increase, or allowing them to set up a plan that will automatically escalate their retirement contributions until they reach their desired contribution level, you can help your employees boost their savings rates with only a minimal impact on their take-home pay.
- Customize the information you share. A well-designed and implemented employee education program is key to engaging employees. The program should involve various methods of communication. You could create an app or a section of your website to make information available whenever an employee needs it. Videos and interactive tools make the information more understandable. Also, give employees an option to communicate with an HR representative to ask questions and receive information tailored to their needs, and consider offering group and one-on-one sessions.
Remember, you will always have some employees who will not participate in your plan regardless of what you do. The key is to maximize usage of your plan by those who will participate. Please contact us if you have questions about the information outlined above, our seasoned and experienced employee benefit plan professionals are here to help. You can also learn more about our Employee Benefit Plan Audit services by visiting our website.