If you’ve taken the time to set up a 401(k) for your small business’s employees, chances are you’re probably hoping they’ll enroll. After all, low participation rates can lead to a lack of retirement savings for your employees, as well as limiting the benefits that you can receive from offering a 401(k) plan. So how do you make enrollment happen? There are several ways that small business owners can encourage high participation rates in their 401(k) plans.
1. Consider the factors that impact participation rates…
Several factors can affect small business 401(k) plan participation rates, including plan complexity, high fees, limited investment options, and more. Lack of automatic enrollment and no employer match can also be a turn-off when it comes to employee participation.
2. …And then solve for them.
Show your employees you can give them the 401(k) plan they need. Choose a retirement plan that enables employees to save for retirement easily, the flexibility to make changes when necessary, and the educational resources they need to improve their financial literacy.
3. Make sure they understand the upside of a 401(k) plan.
A small business 401(k) plan greatly benefits all participants. After all, it allows them to save for retirement while potentially reducing their current tax liability. Employees can contribute up to $22,500 (or $30,000 if they are age 50 or older) in 2023 to their 401(k) plan–and you can make contributions on their behalf, too.
Bonus: You benefit, too. Offering a 401(k) plan helps attract and retain talented employees. And even better, your contributions are tax-deductible, too.
4. Simplify plan design.
Simplifying the plan design can make it easier for employees to understand and enroll in the plan. This can include providing clear explanations of plan provisions, clarifying investment options, offering automatic enrollment and auto-escalation, and more.
5. Increase employee communication.
You must communicate the benefits of the plan clearly and frequently to your employees for it to work. This includes explaining how the plan works, what the benefits are, and how to enroll. We like to use a variety of methods so everyone gets the information: email, newsletters, and meetings all work.
6. Offer employer matching contributions.
Implementing an employer match into your small business’s 401(k) offering can be a powerful incentive for employees to participate in the plan. You can choose to match a percentage of your employees’ contributions or make a fixed contribution.
7. Implement automatic enrollment.
This easy step can remove the barriers to entry that employees may face when trying to enroll in the plan. With automatic enrollment, employees are automatically enrolled in the plan unless they choose to opt out.
Thanks to Secure 2.0 legislation, most plans established by December 29, 2022 will be required to add automatic enrollment no later than January 1, 2025, so you might as well get ahead of the curve.
8. Provide financial education to encourage saving.
Encouraging employees to save by helping them understand the benefits of saving for retirement and how to manage their finances effectively. You can assist by offering education on 401(k) planning and encouraging your employees to increase their contributions–helping them achieve their goals and showing that you value their futures.
9. Offer incentives.
Prizes and recognition can be great ways to encourage participation in your small business’s 401(k) plan. Secure 2.0 legislation permits de minimis financial incentives, not paid for with plan assets, such as low-dollar gift cards, to boost employee participation in workplace retirement plans. You can incentivize things like enrollment, increasing contributions, reaching savings goals and more.
