How to Increase 401(k) Participation and Why It's Important
By Alison Hinson, AlisonHinsonMBA.com
There are many good reasons your company offers a 401(k) plan and, unfortunately, many good reasons why your employees don't participate.
Despite all the current and future benefits of a 401(k) plan, many employees are too focused on their immediate financial needs to save money for the future. Given the performance of the stock market in the past 10 years, they might also be wary of investing.
A low participation rate in a 401(k) plan may impact the bottom-line of your company. Businesses attract and retain good employees by offering pertinent benefits as part of an overall compensation package. An employee who doesn't take advantage of a 401(k) plan or other benefits may not realize the importance of a benefit package as part of their compensation plan and be more likely to switch employers for an increase in base compensation alone.
You know how much time, energy, and money it takes to replace a good employee. What if you could use a fraction of that to increase participation in your 401(k) plan? Selling the benefits of retirement savings can be hard, especially in this economy, but there are ways to encourage employees to take advantage of your plan.
1. Illustrate the Impact of a One Percent Annual Contribution
I gave a presentation to a group of employees making $13 per hour. We calculated that one percent of their weekly wages equaled $3.90. They all agreed that this amount was small enough that they easily could use it to begin regular contributions to a 401(k) plan.
We then looked at what would happen if, going forward, they applied one percent of their annual wage increase to their 401(k) plan. Through the cumulative impact of compound interest, annual one percent increases in their contribution rate, and the employer-matching rate, this $3.90 figure grew into $81,000 after 15 years.
They had originally guessed that they would have between $15,000 and $25,000 after 15 years. You can imagine their surprise.
2. Teach People How to Manage Their Personal Finances
An employee who can't figure out how to pay their utility bills is not going to enroll in a 401(k) plan. In fact, bringing in your 401(k) rep to talk about the benefits of a retirement plan will only increase their stress level.
Consider sponsoring a free weekly series on managing personal finances. This provides the time to not only discuss topics, but also implement/introduce changes over time. Offering the program at no charge to participants breaks down a barrier to participation ? people who are having financial issues know that they need the help, but they can't figure out how to pay for it.
Learn how to administer a financial program to your employees.
Show Them You Care
Reaching out to your employees with helpful financial information that can improve their lives will create happier, educated, wealthier employees and thus long-term stability for your company. Your employees and their families will have you to thank.
Alison Hinson has over 20 years of experience helping business owners make intelligent decisions with their money. She provides corporate programs to help employees better manage their personal finances. In addition to consulting, she frequently writes, speaks, and creates webinars about various financial topics. Alison is the host of Money Talks, an award-winning radio talk show on WMPG, and co-host with Debi Davis of Mind Your Own Business, a show dedicated to all things small business, on WLOB. For more information about her business coaching and other services, visit AlisonHinsonMBA.com or call 207-671-1491.