Your 401(k) Plan

Your 401(k) Plan: Why Aren Employees Contributing and What You Can Do About It

Your 401(k) plan is one of the strongest parts of your company’s benefits package. Offering employees a reliable way to save for retirement not only helps attract top tier talent, but it bolsters retention and employee engagement levels. These are major benefits that you won’t be seeing if employee participation in your 401(k) plan is low. When employees aren’t signing up for your 401(k), it’s a sign that your plan needs a strategic re-evaluation.

Why are employees opting out of your 401(k) plan?

Before you can address low participation rates, you need to determine why your employees are passing on your plan. There can be several reasons for this.

Many sales reps are just that: sales reps. They work for sales commissions and focus their efforts on cross-selling financial products rather than focusing on your employees financial wellbeing.

Consider your employee base. Do many of them have the large net worth that would make a laundry list of additional upsells appealing? For most small and medium-sized businesses, the answer is probably no. Your everyday employees are better served when you have a clear and regular employee education program that is not just focused on a “pitch” to enroll employees, but instead gives employees the tools that they need to improve their practical financial lives, such as:

  • Reducing credit card debt and its interest
  • The best way to tackle student loans
  • Finding the highest interest-paying savings accounts to establish an emergency fund
  • Saving for a vacation
  • Buying a car or home
  • Keeping a live budget
  • Get on track for retirement
  • Learn about markets

According to the Bureau of Labor Statistics, as many as half of all employers offering a 401(k) are not matching employee contributions, and the average match rate settles at around 3.5 percent.

Contribution matching is a huge incentive. If you’re not matching employee contributions, then your workers are likely to set up a retirement savings elsewhere.


Retirement funds aren’t simple and most plan descriptions weren’t written with readability in mind. Unless your employees are all financial advisors themselves, they’re likely to be put off by excessive jargon.

It’s your job as an employer to make sure your workers have a clear picture of what benefits are available to them, how they can participate, and what the real costs are.


Every employee is different and the traditional one-size-fits all approach to benefits has long overstayed its usefulness. Make sure your plan has different contribution options for employees at each stage of their career. For example, younger employees may need less expensive options with the opportunity to increase contributions later after they have freed themselves from student loans and other debts.


Be organized in how you address changes to your 401(k) offerings. Regularly reviewing your plan will help you identify its strengths and weaknesses. These annual benchmarks will also help you stay on top of changing 401(k) regulations.


Here are 3 basic questions to get you started on your next 401(k)
review:

How much are you and/or your employees paying annually in fees and extra costs? Although the 408(b)(2) Mandatory Fee Disclosure is not easy to understand, it will include all of the billed and embedded costs in your plan. Your WellthCoach is trained to help you understand it.

Does your current plan offer extra incentives or rewards for employees who participate? Participation means engagement and engagement equals retention. If less than 50% of your employees participate in the plan, the program is broken at the cost level, service level, or both.

Are you maximizing possible tax-deductible savings? The right plan design will help you use tax efficiencies to incentivize employee productivity.


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