Five ways em­ploy­ers can boost retirement plan par­tic­i­pa­tion.

Em­ploy­ers should em­brace auto-en­roll­ment, au­to­mat­i­cally in­crease em­ployee con­tri­bu­tions each year and con­tin­u­ally ed­u­cate work­ers

Employee Benefit News - - CONTENTS - By Mark Lamor­iello Mark Lamor­iello is pres­i­dent and chief in­vest­ment of­fi­cer of Lamco Ad­vi­sory Ser­vices.

The case for help­ing em­ploy­ees with fi­nan­cial ed­u­ca­tion is com­pelling. Amer­i­can work­ers be­lieve that their em­ploy­ers should care about their fi­nan­cial well-be­ing, and cre­at­ing fi­nan­cial ed­u­ca­tion pro­grams can help re­duce em­ployee stress and make a dif­fer­ence in a com­pany’s bot­tom line.

How­ever, when it comes to es­tab­lish­ing a fi­nan­cial pro­gram that helps work­ers make bet­ter de­ci­sions, many com­pa­nies over­look one of the most ba­sic tools: the em­ployer-spon­sored retirement plan. By ed­u­cat­ing and en­cour­ag­ing work­ers to par­tic­i­pate in a retirement plan, em­ploy­ers can boost worker sat­is­fac­tion while help­ing em­ploy­ees pre­pare for the fu­ture. Here are a few strate­gies that can im­prove 401(k) em­ployee par­tic­i­pa­tion.

1. Auto-en­roll em­ploy­ees

There is noth­ing more ef­fec­tive than auto-en­rolling em­ploy­ees. An in­creas­ing num­ber of com­pa­nies are tak­ing this step. A sur­vey from Alight So­lu­tions found that 68% of large U.S. em­ploy­ers now auto-en­roll their em­ploy­ees.

Auto-en­rolling work­ers af­ter 90 days of em­ploy­ment, and re­quir­ing them to opt out if they don’t want to par­tic­i­pate, can be an easy way to en­sure that most work­ers save for retirement. Most auto-en­roll­ment plans en­roll em­ploy­ees at 3% or 4%. The aver­age “opt out” rate for a plan with auto-en­roll­ment at 3% is just 6%. This means that over time, this plan’s par­tic­i­pa­tion rate will ap­proach 94%.

2. Of­fer an em­ployer match

In the years fol­low­ing the 2008 fi­nan­cial cri­sis, fewer em­ploy­ers of­fered match­ing con­tri­bu­tions to their work­ers. Now, though, more em­ploy­ers are boost­ing their match­ing con­tri­bu­tions. Com­pa­nies that of­fer matches have the chance to pro­vide free money (and get a tax break in the process) to em­ploy­ees. Not only can a match in­spire em­ploy­ees to con­trib­ute to a retirement plan, but it also can en­cour­age them to be more loyal, re­duc­ing in­ef­fi­cien­cies due to turnover.

3. Stretch your match dol­lar

The most com­mon em­ployer match pro­gram, ac­cord­ing to Van­guard, is one in which an em­ployer of­fers 50 cents for each dol­lar a worker con­trib­utes, up to 6% of pay. For a worker earn­ing $50,000 a year, it re­sults in a $1,500 free con­tri­bu­tion from the em­ployer.

Many com­pa­nies still use a dol­lar for dol­lar match for­mula how­ever. While they still en­cour­age par­tic­i­pa­tion, they aren’t the most ef­fec­tive at get­ting par­tic­i­pants to save more. This is be­cause most em­ploy­ees tend to de­fer the amount they need to in or­der to get the max­i­mum match­ing con­tri­bu­tion. By un­der­stand­ing this be­hav­ior, em­ploy­ers can “trick” par­tic­i­pants into saving more.

4. Au­to­mat­i­cally in­crease em­ployee con­tri­bu­tions

Another strat­egy is to boost em­ployee con­tri­bu­tions each year. Auto-es­ca­la­tion, the cousin to auto-en­roll­ment, au­to­mat­i­cally in­creases a par­tic­i­pant’s de­fer rate 1% ev­ery year un­til they reach a pre­de­ter­mined cap (usu­ally 10%).

This helps em­ploy­ees grad­u­ally save more. This op­tion can be vol­un­tary on the part of the par­tic­i­pant, or it can be man­dated by your plan. Many work­ers plan to in­crease their con­tri­bu­tions, but never get around to it. By of­fer­ing this sim­ple perk, it’s pos­si­ble for com­pa­nies to en­cour­age greater de­fer­ral rates.

5. Of­fer em­ployee retirement plan ed­u­ca­tion through­out the year

Sim­ply of­fer­ing a pam­phlet or hu­man re­sources pre­sen­ta­tion upon hir­ing isn’t enough to ad­e­quately ed­u­cate em­ploy­ees about their retirement op­tions. Com­pa­nies should in­cor­po­rate retirement plan ed­u­ca­tion into their year-round fi­nan­cial well­ness pro­gram.

Pro­vide in­for­ma­tion about the ben­e­fits of the retirement plan, as well as in­for­ma­tion and help pick­ing funds for the plan. Com­pa­nies that of­fer a yearly meet­ing with a fi­nan­cial plan­ner, or some other ac­cess to reg­u­lar plan­ning help can in­crease plan par­tic­i­pa­tion be­cause bet­ter-in­formed em­ploy­ees are more likely to take steps to se­cure their retirement. EBN

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