Do You Provide Employees What They Want?
June 6, 2019 - It’s a fact: surveys show employees value their company’s 401(k) plan. Here are other key survey insights into what employees want as well as tips to improve your plan in response – thus, helping your employees build toward a more secure retirement.
• Employees expect their employers to guide their participation and savings rates in the company 401(k) plan.
• Participants value direction on how to invest their 401(k) savings.
• In today’s stress-filled world, employees appreciate financial education to help them take control of budgeting and saving.
Providing Savings Direction: Automatic Enrollment and Escalation
Like many of us, employees can be procrastinators, and they don’t know how much they should be saving for retirement. A great way to overcome procrastination and set employees up for retirement success is to automatically enroll them in the company 401(k) plan and, in subsequent years, automatically escalate their rate of savings.
It’s suggested that employees should be saving at least 10 percent of their income towards retirement, so employers will want to consider an initial automatic enrollment rate of 6 percent. This can be followed by an annual 2 percent rate of escalation until a 10 percent savings level is reached. Using this approach, employers help their employees achieve desired savings habits in just three years!
While some employers worry that selecting an initial deferral rate of 6 percent could be a shock and prompt some participants to opt out of the 401(k) plan, research shows employees are only marginally more likely to opt out if the savings rate is 6 percent versus 3 percent.
Providing Guidance: How to Invest
401(k) plans should make it easy for participants to properly invest their savings. This requires plan sponsors to expertly select and regularly (quarterly is a best practice) monitor plan offerings based on criteria defined in the plan’s Investment Policy Statement . . . or hire investment professionals who are qualified under ERISA to do so on their behalf.
While many small plans simplify the individual investment selection process for participants by offering target date funds, there are a growing number of plans that offer a better solution. Known as managed accounts, these solutions allow participants to be properly invested according to their goals, life expectancy, other retirement savings, risk tolerance and other concerns. Managed accounts can include diversified risk-return model portfolios.
It’s important that 401(k) plans offer guidance from a qualified financial advisor. Participants benefit from access to a consistently available professional, not a constantly changing voice at a call center. The financial advisor can help participants assess their unique financial situations and make educated investment decisions.
Providing Help: Financial Education
Employers benefit when employees are in control of their finances. Studies show financially stressed employees are distracted, spending as much as four hours during the workweek on personal financial matters. A 401(k) program is a logical) place to provide financial education to help employees take control of budgeting, debt and savings.
Financial education methods vary, but all should address employee concerns at various stages of their working lives. These can include: financial basics such as budgeting, purchasing insurance, saving for children’s college education, determining retirement income needs, developing a will or an estate plan, purchasing Long Term Care insurance, and deciding when to claim Social Security.
There are a variety of ways to deliver financial education: through written literature, webinars, interactive web-based programs and, again, access to a qualified financial advisor.
The ultimate goal of a 401(k) plan is to help employees build toward financial security in retirement. A knowledgeable service provider can help employers implement each of the strategies above. Responding to what employees want in the areas explored can lead to a stronger 401(k) plan, providing employee and employer alike with a better benefit.
Written by Laurie C. Wieder, PPC®, Vice President, Alliant Wealth Advisors, Qualified Plans Division
This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan, and hence cannot be a guarantee against fiduciary breaches.