Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Increase Participation in your 401(k) Plan

Is participation in your 401(k) plan still down? Some ways you can increase participation in your plan include identifying and overcoming the common objections and simplifying enrollment.

Two of the most common objections for not participating that you will encounter as a plan administrator are that employees cannot afford to defer their income and that the money is not accessible if needed. When employees are concerned about the affordability of participation, stress to them the importance of being financially independent at retirement and present scenarios of being dependent on a small, fixed income that greatly reduces their quality of life at retirement. You can also present options for making participation affordable such as decreasing spending on expensive habits (i.e. smoking, daily coffees, etc.), analyzing other areas where they may be overspending and other money saving ideas that you can suggest to them.  You can also provide information to them regarding potential tax savings and credits for making contributions.  See our blog “Tax Savings Credit – Incentive to increase 401k participant” dated September 22, 2009.  When employees are concerned with the accessibility of the funds, it is important they understand that 401(k) plan rules are in place to ensure the funds are set aside for retirement and that having the funds readily accessible would defeat their purpose.  If your plan offers them, it may help ease their concerns by explaining hardship withdrawals and loans; however, be sure to include the restrictions of both these options.

You can also increase participation by implementing automatic enrollment. This option automatically enrolls all eligible employees at predetermined deferral percentage, unless the employee opts out within the time frame set forth by the plan document (consult with your third-party administrator). Participation can also be increased by scheduling open enrollment periods for your 401(k) plan in coordination with the open enrollment periods for health benefits. Finally, you can have your 401(k) provider assist you by conducting presentations to your employees on a regular basis; however, it is important that you attend these presentations or coordinate with your representative prior to the presentation to ensure that the content is not full of technical “jargon” and that the information is being presented in a manner that is understandable by all of your employees.

By considering these few steps you can increase your plan participation and ensure that more employees are receiving it’s benefits.

Joe Goodmiller