Boosting Participation in Your Company's 401(k) Plan
By: Gregory J Cook, EA, CPA
Your retirement plan can be one of the greatest benefits you
provide to your employees, but are they all taking advantage of the opportunity?
One rule of retirement investing is the earlier you start and the more you put
away, the more you’ll have for your later years. But convincing younger
employees to make larger deferrals now is not easy.
You’ve probably seen the figures touting the impact of compounding on steady
plan contributions made during a participant’s younger years. Even small
contribution increases when an employee is under age 30 can have a major effect
on the employee’s plan balance at retirement age.
Your plan’s design can help encourage younger employees to participate in the
plan (or make larger contributions than they do now). Here are some suggestions.
Increase your match. Raising your matching contribution to 50 cents or more per
dollar deferred can have a significant impact on participation rates. Employers
who don’t want to raise their costs might consider reallocating an existing
match so that more is allocated to the first 3% or so of an employee’s pay
contributed to the plan. This may entice non-participants to start saving at
least 3% of their salary.
Allow more frequent deferral elections. Allowing participants to change their
deferral percentages frequently gives them the ability to adjust their take-home
pay to meet expected -- and unexpected -- expenses. When you provide the
flexibility to stop and restart contributions more often, employees can feel
more comfortable keeping contributions high during normal times, knowing they
can cut back if they need the money for other purposes. In most cases, this
means higher contributions overall.
Regularly sell the benefits of contributing. Many employers only promote their
plans during initial enrollment. Others provide an ongoing message, often
through a periodic participant newsletter, or they use creative ideas, such as
contests, to bring attention to the plan. Some employers make a special effort
to encourage an employee to contribute more when the employee has more money to
contribute -- i.e., when he or she is getting a raise. They provide supervisors
with contribution change forms to give out to employees during favorable salary
reviews. It will be easier for employees to save their increases if they never
get used to spending the extra money.
Increasing the level of employee participation in your company’s retirement plan
is an important responsibility that will affect all of your employees. Consult a
qualified financial professional to assess your retirement plan to see what
changes you could make to your plan to make it even more attractive to your
employees.
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