by Joseph Maas
Today’s employees face many challenges with funding their retirement, and are just not doing enough to prepare for their financial future. Improving your employees’ participation in your company’s 401(k) plan will benefit them, and could have significant positive outcomes for your company as well.
Because the retirement landscape has changed so much, participants in defined contribution plans like 401(k)s need more guidance, support, and education to navigate volatile markets. Improved financial behaviors can lead to the results your employees need for a secure retirement. Employers who take an active role with helping their employees plan for retirement typically have happier, more productive, and more loyal employees.
An important way you can help your workers with their retirement needs is by encouraging better savings behaviors. Research indicates the average baby boomer is about $500,000 short in retirement savings, and many workers cannot retire on time because they lack adequate savings. Most plan participants need to boost their savings rates by at least 5% – 10% to meet their retirement goals. Encouraging more retirement savings can protect your company from the additional and expensive costs of healthcare, inflated salaries, and decreased productivity as “elder” employees delay their retirement.
One of the best ways to encourage participants to save more is to incorporate and leverage automatic features. A 2010 study by the Employee Benefits Research Institute (EBRI) discovered that plan options like increasing the contribution limit, auto-escalation of contributions, and auto-enrollment had dramatic effects on employee retirement savings, particularly among non-highly paid workers. Also, improving savings behavior among lower-paid employees may make it easier for your plan to satisfy non-discrimination testing, which is another benefit for your company.
The Pension Protection Act of 2006 (PPA) introduced several safe harbor provisions for implementing auto-enrollment and auto-escalation of contributions. Plan sponsors who wish to seek protection under ERISA 404(c), QDIA, or QACA safe harbor provisions are free to implement auto-enrollment and auto-escalation features, subject to certain limits.
An experienced Certified Financial Planner® (CFP®) can provide expert guidance with designing enrollment features that help meet your employees’ needs, and the needs of your company.
Providing a good retirement program for your employees is the first step toward helping your work force achieve a safe and secure retirement, one that may last as long as one-quarter of their lives. The second step is leading them to make good use of the excellent financial opportunity you’ve made available.
To learn more about Joe Maas, view his Paladin Registry profile.
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