Driving 401(k) Participation

Features like auto-enrollment and employer matching can encourage your employees to take full advantage of their retirement benefits.

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Whether your business is a large corporate enterprise or local, family-owned business, a 401(k) plan proves to be a powerful employee retention tool and a way to attract top talent.

Sought-after hires are often looking at the full benefits package when making career decisions, including compensation, vacation, healthcare, investment opportunities, and quality-of-life perks.
Availability of the plan, however, is only beginning. As the employer, you also need to encourage participation, which will take a thorough demonstration of the plan’s benefits, encouragement, and education about how to get started.

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Benefits of Increasing Employee 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.

Employer Matching Encourages Greater Savings

If possible, matching your employee’s contributions can make a huge difference in the value of your plan. Employer match plans are the most popular type. Under these plans, the employer “matches” a portion of the employee’s contribution. If an employee does not contribute a part of their paycheck to the program, they will not receive the employer’s contribution. In essence, this is “free money” they can access simply by saving for their own retirement. For example, if an employer is matching 100% (dollar for dollar) up to 4% compensation, an employee would need to defer at least 4% to receive the maximum employer match. Employees receive this matching contribution (and any earnings over the years) without having to pay tax on it.

Employers benefit from matching contributions as well. Helping employees retire with financial security at a reasonable age keeps the workforce fresh. Employee morale boosts when they see their employer genuinely cares about them and is willing to invest in their future wellbeing. Employers decide whether to make a matching contribution each year, which employee contributions they’ll match, what the matching formula will be, and what eligibility requirements will be in play.

Again, awareness is critical for active employee participation. Merely offering the match is not enough. Plan sponsors who educate employees about match levels drive more considerable savings and better retirement outcomes.

Education Goes A Long Way In Making Employees More Comfortable With Saving.

Investments – with the encyclopedia of jargon that comes along with them — can seem foreign and overwhelming. Confidence stems from awareness and knowledge. Fortunately, Ubiquity provides all the tools your employees need – free-enrollment education, webinars, and engaging materials that address common obstacles to investing.

Through our user-friendly portal, employees will learn everything they need to know, including:

  • How much they should (or can afford to) contribute toward retirement.
  • How they can expect that money to grow and compound in interest over time.
  • Why investing in a 401(k) saves them money on taxes now.
  • What your company is contributing to their retirement fund, if applicable.
  • How to access, use, and make changes to their individual 401(k) accounts if desired.

Empowered employees are more likely to save once they know how to check their balances and take any action they need on their accounts. Employees should be able to change their savings rate or investment allocations in just a few clicks. If your provider requires lots of steps to perform these basic actions, it might be time to look at finding a more user-friendly provider like Ubiquity.

Drive Small Business 401(k) Participation With The Right Provider.

Of course, working with the right 401(k) provider matters, too. Some online brokers will provide you with chatbot customer service and nothing more. Ubiquity has helped more than 100,000 employees take advantage of their small businesses’ 401(k) plans with personalized, user-friendly employee education portals and a responsive customer service hotline for employees and employers alike. When you choose Ubiquity as your 401(k) provider, we make sure you have everything you need to promote your plan to employees, including ample support.

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© 2023 Ubiquity Retirement + Savings
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44 Montgomery Street, Suite 300
San Francisco, CA 94104

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© 2023 Ubiquity Retirement + Savings
Privacy Policy
44 Montgomery Street, Suite 300
San Francisco, CA 94104