A retirement savings account is one of the most sought-after benefits an employer can offer. However, plan sponsors can sometimes struggle to effectively communicate a plan’s benefits to employees in ways that boost engagement and enrollment. Don’t let your plan wither on the vine; follow these seven key steps plan sponsors can take to increase employee participation in your retirement plan.
Participant Education
Do your employees know you offer a retirement plan? Even if they do, they may not be aware of just how they can benefit from it. Others might be nervous about selecting their own investments, hesitant by prior economic and market downturns that caused the value of their accounts to temporarily plummet. Providing ample, relevant communications to your employees is key, covering multiple financial wellness topics, and to do so in various easy to understand and implement formats to produce results. Anything from brochures and videos to online meetings and seminars. By prioritizing participant education, you can give employees the confidence to choose their own investments or take advantage of additional guidance.
These education sessions don’t need to be involved or expensive—something as simple as a monthly brown-bag lunch hosted by an HR or benefits representative can ensure that employees can have all their questions answered by someone familiar with the terms of their plan.
Auto-Enrollment
Inertia is a powerful force, particularly when it comes to retirement saving. Many employees tend to put off enrolling in a retirement account until after they’ve paid off certain debts, received a raise or reach a certain age; however, for many, “maybe next year” can soon turn into “maybe next decade.”
Adopting an automatic enrollment feature and applying it across the board can help this inertia work in your (and your employees’) favor. Instead of requiring employees to take a proactive step by enrolling in a retirement account, employees will be automatically opted in—ensuring that the only way to avoid contributing to retirement is by taking the proactive step of unenrolling. Commonly, when this is employed, few participants choose to opt-out.
Re-Enrollment
Even with an auto-enrollment feature to help increase employee participation in your retirement plan, there may be some employees who fall through the cracks, and there are new hires regularly. By spearheading an annual re-enrollment campaign, you will ensure that those who are eligible for (but have not yet enrolled in) your retirement plan are reminded of its many features and benefits.
Auto-Increase
Many employees, particularly those who have been auto-enrolled in an employer’s retirement plan, tend to take a “set it and forget it” attitude toward retirement contributions. But just like saving one’s spare change in a jar can yield some major cash after a few years, so can automatically (and incrementally) increasing your retirement contributions. By offering employees an auto-increase, or allowing them to set up a plan that will automatically escalate their retirement contributions until they reach their desired contribution level, you can help your employees boost their savings rates with only a minimal impact on their take-home pay.
Employer Match
Adding an employer match can go a long way toward boosting participation rates. No one wants to leave money on the table, and offering a match of a few percent can encourage plan participants to contribute at least up to this level. Because matching retirement funds aren’t classified as income to the recipient, an employer match can offer major appeal to anyone who isn’t keen on increasing their taxable income.
Stretch Match
If a traditional employer match just isn’t enough to capture all eligible plan participants, consider adding a stretch match to your toolbox. This type of match encumbers the same amount of funds, but “stretches” the match to cover a larger swath of income. For example, an employer could offer a flat 3 percent match on all contributions or, instead, could match $0.50 per dollar up to 6 percent, or $0.25 per dollar up to 12 percent. By expanding the contribution range, an employer can encourage employees to stretch their own dollars to contribute a higher percentage of income to their retirement accounts.
Roth Option
Not all employees are interested in boosting their pre-tax retirement savings; with future tax rates a mystery, some advisors recommend having a healthy mix of taxable, tax-advantaged, and tax-free accounts to ensure that major tax changes don’t have a disproportionate impact. To this end, offering a Roth option—that is, giving employees the chance to contribute after-tax dollars to their retirement—can expand the scope of prospective retirement plan contributors. Roth contributions tend to particularly benefit earlier career contributors who take advantage of them over the course of their careers.
We Can Help
Not all the above-listed tips are suitable, appropriate, or even possible for all organizations. However, if you’ve been struggling to increase your retirement plan participation rates, making just a few of these changes can go a long way toward achieving that goal.
If you are ready to consider ways to enhance employee participation in your retirement plan, PlanPILOT can help. We are an independent Registered Investment Advisor, not tied to any investment fund or recordkeeper, and we deliver retirement plan advisory services to 403(b), 457, and 401(k) plan sponsors. Feel free to contact us at (312) 973-4911 if you would like to learn how PlanPILOT can help your retirement plan administration team and plan participants achieve better outcomes.