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Over the last couple of years, we have had more and more conversations around how to increase employee participation in 401(k) plans from an employer standpoint. As a plan sponsor, HR professional, and/or business executive, it’s important to educate employees on the benefits offered and provide the right tools and resources to help employees save for retirement.

 

From the employee’s perspective, some of the questions employees have been asking are:

 

  • “If I choose a deferral percentage, what is the actual amount I am contributing?”

 

  • “How much will be taken out of my paycheck?”

 

  • “If I increase my contribution 1%, how will that affect my paycheck and my retirement account?”

 

These types of questions are just a couple of examples that show that retirement savings is not the easiest thing to understand. Without fully understanding the specifics of their retirement benefits offered, employees are less likely to participate.

 

The question then becomes: what can you do as the employer, to show employees the benefits you are offering to them and the value it can bring to their future if they choose to participate? Encouraging employees to save for retirement is crucial for their long-term financial freedom and well-being. As a guide to retirement for employers, an employer may consider the following to achieve this goal:

 

1. Increase Financial Literacy

    •  • Many employees lack understanding of financial concepts like investing, budgeting, and saving. Offer workshops, online courses, and educational resources to enhance their financial literacy.
    •  • By increasing knowledge in retirement savings, employees can make informed decisions and gain confidence in retirement planning. 
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2. Transparent Communication

    •  • Clearly communicate retirement plan details, including dollar amounts deducted from paychecks. 
    •  • Explain the impact of contributions on take-home pay. Transparency reduces anxiety and empowers employees to make informed choices. 
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3. Provide Access to Advisors

    •  • Offer access to licensed and authorized financial advisors, who specialize in retirement planning. According to Fidelity’s 2023 Plan Sponsor Attitudes Survey, one of the most valued benefits of having a plan advisor is that 44% improved participant outcomes. One of the top measures to underscore advisor value is 37% reported increases in employee participation level.
    •  • Employees may hesitate to seek professional help due to perceived costs or lack of awareness. Educate them about the value of expert guidance and the costs that are covered under the plan.  
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4. Automatic Enrollment and Escalation:

    •  • Consider implementing automatic enrollment in the retirement plan(s). New employees are enrolled by default unless they opt-out. 
    •  • Gradually increase contribution rates over time (auto-escalation). Employees adjust to smaller paycheck deductions without        feeling overwhelmed. 
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5. Matching Contributions

    •  • Offer matching contributions to incentivize employees. Consider dollar-for-dollar matches or partial matches. 
    •  • Clearly communicate the matching policy and emphasize the “free money” aspect. 
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6. Regular Reminders

    •  • Send periodic reminders about retirement savings. Highlight the dollar impact and emphasize the long-term benefits. 
    •  • Use channels like emails, internet announcements, or company newsletters. 
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7. Financial Wellness Program

    1.  • Provide financial wellness programs that cover retirement planning that include personalized advice and tools. Many recordkeepers and/or advisors have partnerships with these types of programs. 
    2.  • Encourage employees to set specific savings goals and track progress. Vestwell’s 2024 Savings Trends Report shows increased demand for other workplace financial benefits that can be fulfilled through a financial wellness program. According to the study, the 3 most important items to a saver’s financial situation are:
    3.  

       1. Saving for retirement – 52.5%

       2. Paying off debt (mortgage, student loans, credit cards, etc.) – 26.4%

       3. Saving for Healthcare Expenses – 8.8%

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8. Visual Tools and Calculators

• Encourage employees to use the interactive tools or calculators, offered by most recordkeeprs, that allow employees to see the impact of different contribution levels. 

•  Visualize how adjustments affect take-home pay and retirement savings. 

 

Remember, a well-designed retirement savings program not only benefits employees but also contributes to a more engaged and financially secure workforce. By emphasizing dollar amounts and providing educational resources, employers can empower their employees to save effectively for retirement.

 

I understand that every organization is different and there’s not a one-size-fits all when it comes to retirement benefits. Take this as an opportunity to review the employee participation in your retirement offering and in what areas can be improved upon to help your employees save for retirement.

Julia Sanders | AIF®, CPFA® 

Retirement Relationship Manager

Meet Julia, a people-focused life-long learner with several years of experience in the retirement plan industry. Throughout her career, Julia has been committed to maintaining strong client relationships by providing incredible customer service. She is passionate about helping clients define and plan for their retirement goals. Julia’s daily role at the firm energizes and reinforces her commitment to client-focused work. 

Investment Advisory Services Offered Through M Holdings Securities, Inc. A Registered Investment Adviser, Member FINRA/SIPC. Rose Street Advisors LLC is independently owned and operated.File #: 6476277.1

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