According to a recent summary report from the Merrill Lynch division of Bank of America Corporation (BAC), companies that are concerned about the personal financial health of their employees will adhere to seven best practices regarding saving-oriented benefit plans. Among these plans are 401(k) plans and health savings accounts (HSAs). Merrill Lynch's recommendations are drawn from its experience with 2.98 million plan participants whose accounts were valued at $155 billion in the aggregate as of 12/31/2015, up from $136 billion on 6/30/2015. For full detail, see Merrill Lynch's comprehensive Plan Wellness Scorecard.
The 7 Best Practices
- Enroll all eligible employees automatically, and not just new hires.
- Simplify and speed up enrollment, partly by reducing the initial decisions that employees must make.
- Combine automatic enrollment with automatic increases in contribution rates.
- Increase default contribution rates.
- Offer a Roth 401(k) as an option. This is particularly popular with enrollees under age 50.
- Give online access to employees for account changes and updates, including access via mobile devices.
- Offer seminars and personalized one-on-one guidance regarding plan features and general financial education.
Regarding best practice number 2 above, simplified enrollment, Merrill Lynch offers these further recommendations:
- Offer just three contribution rates.
- List them from highest to lowest.
- Set the lowest rate at no lower than 3%.
- Have a managed account or model portfolio as the default investment option.
Concerning best practice number 3, automatic enrollment, the default employee contribution rate should be no less than 3%, and at the level that maximizes the employer's matching contribution.
With respect to best practice number 6, online and mobile access for employees, data security has to be a paramount concern.
- When offered a simplified process, 76% of eligible employees enrolled, versus 53% of those dealing with a traditional process.
- The higher the default contribution rate, the higher participation is. A 3% default rate drew 78% participation, a 6% rate drew 83% participation, and a 10% rate drew 88% participation.
- Of those choosing a Roth 401(k), 52% also contributed to a pre-tax 401(k).
- Mobile access is proving very popular. Unique visitors grew by 57%, and sessions by 27%, from 2014 to 2015.
- Targeted campaigns to increase participation and contribution rates had an 18% success rate when conducted by e-mail, compared to 5% by postal mail.
The Bottom Line
Merrill Lynch's full report concludes with the recommendation that employers think in terms of developing financial wellness programs for their employees. These programs should look holistically at an employee's personal financial situation, with workplace benefits being just a part of that picture.