Driving 401(k) Participation

Employees need some handholding and guidance as they set up their 401(k). For many of them, this will be the first time they’ve ever thought about retirement, much less saving for it. Many will be pleasantly surprised to learn that the process is much less intimidating than they feared.

And why should you bother promoting employee participation? Because increasing employee participation in your 401(k) helps your company’s overall 401(k) perform better (meaning more money for you, more money for them). Depending on the type of plan you choose, increasing employee participation can help ensure compliance with certain requirements. Besides, a 401(k) does little benefit if it’s sitting idle. Engaging all employees to maximize this benefit not only attracts top talent but also helps with talent job satisfaction and retention too.

Auto-Enrollment Significantly Drives 401(k) Participation Rates.

Though most employees consider 401(k) as the second must-have benefit after health, only a small fraction of them actually participate due to the perceived complexities of onboarding, such as completing paperwork and selecting investments. Auto-enrollment is the single-most important step you can take to drive your 401(k) participation rate closer to 100%.

Help your employees overcome these hurdles and maximize their retirement savings with Auto-Enrollment. Many companies automatically enroll employees in their retirement programs, offering the chance to opt-out for employees who don’t want to participate. Auto-enrollment provides your new employees an effortless way to join your 401(k) and start saving for retirement. This manner of execution simplifies the entire process and requires an employee to go out of their way not to participate, rather than having to seek it out in order to start saving.

Another reason to assist your employee enrollment comes by way of the SECURE Act. This legislation introduced a new tax incentive where business owners can receive $500 for the first three years of implementing auto-enrollment to their 401(k) plans.

Consider Auto-Escalation to Boost Savings Over Time.

Once you have savers in your plan, encourage them to be more active with auto-escalation. With this more aggressive retirement savings setup, employees who have not specifically opted-out of auto-escalation will have the percentage of their paychecks contributions to retirement increased by 1-10% on an annual basis.

Auto-escalation benefits employees by helping them overcome inertia and procrastination to save more, particularly as retirement draws nearer. Most people admit they’d like to save more for retirement, but when left to their own volition, few will expend extra effort to increase their contributions. Employees who participate in a plan with auto-escalation achieve a median retirement income replacement significantly higher than employees who do not take advantage of this modern plan feature.

For employers, the auto-escalation feature offers a way to improve your company’s 401(k) non-discrimination testing, particularly if you and other top-paid employees would like to increase your own contributions over time.