As unemployment rates continue to be near record lows, it is more important than ever for companies to focus on employee engagement and retention. One of the tools management can use to attract and retain talented people is a 401(k) Retirement Savings Plan. A 401(k) is a voluntary retirement savings plan, controlled and administered by the employer, into which employees can contribute a portion of their earnings before income taxes. Employers can tailor these plans to specifically benefit their workforce and reinforce company values. Below are a few things that you can do to increase employee participation and engagement with your company´s retirement plan.
1. Consider automatic enrollment.
One of the main reasons employees don´t participate in retirement plans is inertia – it´s easier to do nothing than something. But, you can amend your plan so that employees have to opt-out instead of opt-in. As soon as an employee meets eligibility requirements, they are automatically enrolled at a predetermined percentage of salary. Of course, someone who does not want to participate always has the option of withdrawing, but generally people are happy that the work has been done for them. You can also add an auto escalation feature, where employee deferrals are incrementally increased every year. This helps employees who might otherwise put off saving or save too little to maximize the employer match.
2. Add a Roth option
A Roth option allows an employee to defer a portion of salary after taxes. The account then grows tax-free and can be withdrawn tax-free at retirement. This can be of particular benefit to a younger workforce. Given a chance to grow over a longer period of time, the benefits of paying taxes up-front can be substantial. You may be able to amend your company´s 401(k) plan document to allow employees to choose to defer their salary into either traditional or Roth IRAs, giving them more options and flexibility.
3. Offer professional help
Make sure your company plan´s investment advisor is available and accessible to your employees. New hires should be provided with contact information and the opportunity to discuss their retirement plan options when they become eligible to participate. Employees who feel empowered to ask questions and make changes to their accounts are more likely to participate in the plan.
4. Improve communication
Do your employees know what you´re offering? A single meeting or email is usually not sufficient to educate your employees on your retirement plan´s features. You may want to record meetings and presentations offered by advisors – this will allow you to create an archive for future reference. Embrace continuing education by scheduling periodic updates. Employees may have experienced life changes – like marriage, a new baby, or a promotion – that could affect their retirement. Make sure they know what their options are, and that you´re available to help.
5. Provide lifetime income illustrations
The power of compound interest and the immediate savings of tax deferral are very real and easily demonstrated visually. Graphs and charts that show the growth of money over time can be very powerful and can clearly show employees what they stand to miss out on by not participating, or by waiting to participate. These illustrations show what participants´ stand to receive in monthly income based on their current contribution rates. It can be helpful for your employees to see that the money coming out of their checks now will be coming back to them in time, and that it is supplemented by your company match.
In a tight job market, employers should take advantage of every retention and acquisition tool in their belt, and the company 401(k) plan is a fantastic one. Your employees will thank you for looking out for their long term financial futures, and your business will benefit from taking great care of your people.