Business 401(k) Services / Plan Administration
4 Ways to Help Your Employees Prioritize Financial Wellness
As an employer offering a 401(k) plan, have you ever wondered why your employees aren’t saving more? If your employees don’t prioritize savings, they aren’t unusual; a majority of Americans have less than $1,000 in their savings account.1 Let’s take a look at some steps you can take with your 401(k) plan—including increased financial wellness support—to help your employees make saving for retirement a higher priority.
1. Add Auto-Enrollment Feature
One of the easiest ways for an employer to increase saving into a 401(k) plan is to add an automatic enrollment feature. The idea behind auto-enrollment is simple: Instead of making employees choose to participate in the plan, any eligible employee will automatically be enrolled—if they don’t explicitly choose not to sign up. Unless an employee declines to participate or indicates a different contribution rate, auto-enrollment typically works by setting a default rate for all employees—say 4%. This can have a big impact, potentially cutting in half the number of employees who choose not to participate in your 401(k).2
2. Add Auto-Escalation Feature
Auto-enrollment is a great way to get more employees to start saving, but what about employees who simply aren’t saving enough? It’s not uncommon for employees to start saving in a plan at a rate of 3% or 4% and never re-visit their contribution rate later. But contribution rates should increase over time, and those initial rates are considerably lower than the 10% people in the middle of their careers should be saving, or the 15% for people near retirement. Automatic escalation features work by increasing employees’ contribution rates annually (by a small amount, say 1%), usually up to a certain point (say 15%). Employees who use auto-escalation could potentially end their careers with twice as much in savings as an employee with the same salary and return on investments who did not increase their contribution rates.3
3. Consider a Stretch Match for Employer Contributions
In order to encourage saving, and as an extra perk, many employers choose to offer a 401(k) match, in which they match an employee’s contributions, usually up to a certain percentage of salary. And while this certainly can incent employees to save, some employees mistake the employer contribution limit (maybe it’s 4%) as a recommendation for how much they should save. In recent years, employers have begun to address this challenge by turning to what’s called a “stretch” match, which now represents the most common form of employer match.4 In a stretch match, the employer matches a smaller percentage of employee contributions, but up to a higher contribution limit. For example, instead of offering a 100% match on the first 4% of an employer’s salary, you might offer a 50% match on the first 8%. That doesn’t require any additional dollars from you, but effectively raises the savings rate of any employee who maxes out employer contributions to 12%, up from 8%.
4. Offer Financial Wellness Support
It’s not always the case that employees don’t care about saving; many people want to save more but are simply overwhelmed by the concept of retirement planning. In fact, in our own research of small business employees participating in a 401(k), 77% of respondents said that their sources of 401(k) information did not help them feel in control of their financial future.5 That means employers have an immediate opportunity to take stock of the educational resources and financial wellness support offered by their 401(k) service providers. Is your provider speaking your employees’ language? Are your employees receiving the financial wellness education they need to feel confident in their saving decisions? Discuss ways your provider can increase employee support, like one-on-one meetings to help employees ask specific questions about their unique situation.
As an employer, you’re in a position to help your employees think critically about their financial goals and develop a plan for the future. By offering a 401(k) with plenty of educational support and features that make it easy to save, you can empower your employees to make saving a priority and get on track to meet their retirement goals.
5 Fisher Investments 401(k) in the Workplace Quiz. October 2016.
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