Helping more people access retirement planning is a noble cause, especially when you consider 30% of eligible employees do not participate in their employer’s 401(k) plan. Given the many savings and tax advantages of these plans, one would expect 100% participation.
What’s the problem? Better yet, what’s the solution? Well, the answer to the first question is a bit complex. And it involves the expanding field of behavioral finance, too hefty for this article. (For related reading, see: The 401(k) Gender Gap.)
My goal for this piece? Simplify the complex for you and your employees. That’s why we will not discuss reasons why only 14% of employers with fewer than 100 employees offer a 401(k) plan at all. And I will not tackle why eligible employees who do participate don’t save enough. Or why employees need to resist borrowing from their 401(k) plans.
Two reasons drive workers to shut themselves out of at least some retirement security: the process seems complicated and humans tend toward short-term thinking.
In a survey from AARP, more than half of adults said they had made an investment with an adverse outcome because they “didn’t understand” the investment, which negatively affected their appetite for saving into a retirement plan. It turns out the adverse outcome was based on unexpected taxes or a penalty on early withdrawal - easily overcome had these consequences been communicated clearly and early on. But here’s the rub. Of those surveyed, 54% admitted they “don’t read financial literature because it is too hard to understand.”
In another study by the Social Security Office of Policy, we learn that short-term goals have a negative impact on participation rates. The study establishes that employees’ planning horizon matters. For example, those who “plan for periods of less than five years are much less likely to provide for their retirement than those who have a longer perspective.”
Do you see what a challenge these realities present for everyone in the retirement planning business? Then, add inertia to the challenge. Given the option to do nothing, most people will do nothing, even if the choice brings good to them.
It is extremely difficult to change someone’s opinion, let alone change their behavior. However, we must try. We have an obligation as good stewards of retirement planning to give employees every conceivable opportunity to retire with dignity. As an employer offering a 401(k) plan, you took a major step forward in the retirement challenge. Now, let us work with you to help you engage more of your workforce in your plan so they can realize the long-term benefits of the plan you’ve so generously provided.
Here are some simplified strategies you can put into play to help your company experience a successful enrollment season. And keep in mind, we want to minimize fears and misconceptions around 401(k) plans. (For more, see: 401(k) Plan Options: What to Include (or Not).)
Five Ways to Increase Plan Participation
- Keep it Simple. Be sure to announce and communicate what needs to be done, why and when as simply as possible. Don’t overwhelm your employees with financial jargon, busy charts, too many details or too many choices. Share as much as possible in as few words as possible. Make the message clear, concise and compelling. Appeal to the emotion. Share how the plan protects the employees and their families. Use beneficial imagery.
- Tailor Your Communication. Employees respond differently to different messages. Where email works for one group, formal written materials may work best for another. Some like the visual reinforcement of seeing posters or flyers in public areas, or postcards to their home. Create multiple communication platforms to get the message across.
- Implement Auto Enrollment. Even with automatic enrollment, employees still can choose not to join the plan. However, they must proactively opt out, lessening the possibility of non-participation. And because auto enrollment typically offers default choices in savings rate and investments, it makes it easier for employees to make a decision, free from a dizzying array of choices. At least, they are saving. Good news. The Department of Labor (DOL) estimates auto enrollment alone can slice the number of those not participating in half, from 30% down to 15%.
- Partner with Technology. It’s imperative to give your team 24/7 access to plan information. So put it online and make it interactive. Don’t preach. Teach. You can use any number of human capital management systems so employees can make easy adjustments to their plan. Some offer employee personas or profiles where your worker chooses a profile most like them, a type of self qualification. Then you can match relevant content to their needs.
- Do Creative Marketing. Face-to-face engagement in the plan offers participation incentives. In this age of digital distances, some folks still enjoy good, old-fashion human contact. Think focus groups, lunch and learns, and benefit fairs. Generate excitement. You can even go virtual with these types of events. Simply get creative and enjoy the journey. Today’s savvy HR departments know how to do these events well. If you don’t have an HR department, your retirement plan advisors should be able to guide you.
I could share 50 more ways to increase your plan participation. This article only touches the surface. However, if you do the five things I’ve suggested, you’ll feel a tailwind at your back and head in the right direction.
In the meantime, talk to your retirement plan advisor about any special challenges you face. And remember, you can always outsource full 401(k) plan design, implementation and administration (including employee education and communication) to a specialty firm. The finest and most innovative retirement plan programs will bring together an exceptional alliance of the best of the best plan fiduciaries in the business for you and your employees. (For related reading, see: 401(k) Flaws You Should Know About.)
Disclaimer: Advisory services offered through The Roush Group (TRG), a State of California registered investment adviser. For information pertaining to the registration status of TRG, please contact TRG or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). No Individual should assume that any information presented or made available on or through this website should be construed as personalized financial planning or investment advice. Personalized financial planning and investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of required disclosures. Please contact the firm for further information. Be sure to consult with a TRG adviser and/or a tax professional before implementing any strategy discussed herein.