Rob Woytassek, Alerus, Fargo: Three ideas for boosting participation in your company’s retirement plan
FARGO, N.D. – Some years ago, a company came to me concerned because too few employees were taking part in its 401(k) retirement plan. At the time, though the company was offering employees a 50 percent match on the first 6 percent of employees’ contributions, fewer than 70 percent of employees were participating in the benefit.
The company’s goal was to help its employees as best as possible to become retirement-ready. So, during one of our semi-annual plan reviews, we took a look at three ways to increase participation, with a goal of surpassing industry participation averages while increasing the average contribution percentage for employees.
Here are the strategies we examined:
- Automatic enrollment and contribution increases
More and more companies are using auto-enrollment to boost participation in retirement plans. In my client’s case, the company transitioned from employee-elect participation to auto-enrollment, which means that each year, those eligible but not contributing will be auto-enrolled unless they opt out of participating in the retirement plan.
Second, the company began offering “automatic contribution increases” to its employees. Similar to automatic enrollment, this is an automatic feature that occurs each year unless the participant opts out.
The participant’s contribution percentage is increased by 1 percent until it hits the plan’s target, which is often 10 percent. This is a particularly important feature that helps make sure participants are on the proper savings and financial-fitness track.
Generally, individuals should save between 10 and 15 percent of their income to meet their retirement planning goals. This feature helps to guide them down this path.
Adding these automatic features had a dramatic effect on the company’s overall participation rate, as well as the average participant contribution. Within four years of implementation, plan participation increased from under 70 percent to more than 95 percent, and the average participant contribution increased from under 5 percent to more than 8 percent.
- Modify your match
Have you evaluated your 401(k) match lately? It’s not uncommon for a company to start a retirement plan for its employees using industry averages for the match, which is a 50 percent match on the first 6 percent deferred by the employee. The plan is set up and then forgotten about.
But employee demographics are dynamic and ever-changing. Do your plan’s goals and objectives align with your employee demographics?
We often find that restructuring the matching formula can prompt employees to save for retirement without increasing out-of-pocket expenses for the company. For example, a 100 percent match on the first 2 percent of contributions, with a 25 percent match on the next 4 percent, is the same cost to the company. But it encourages those not contributing to at least put in 2 percent, and a lot of times triggers further curiosity to learn more about the topic.
That, in turn, can help the employees evaluate their overall financial wellness, which often leads them to increase their retirement-plan contribution even further.
- Education and communication
We’ve all heard the saying, “Education is the key to success.” It’s no different when preparing for retirement.
Make sure your participants have access to workplace group meetings where they can discuss plan features and get a broader financial education to support optimal savings behaviors. But don’t stop there. Other communication components can include individual meetings to review the participant’s unique situation, along with levering interactive tools and alerts on the website.
Retirement plans can be intimidating for plan participants. Good communication is key to lowering that fear factor and increasing engagement. It often enhances the view and use of the benefit, and that can have a direct and positive impact on productivity, turnover and timely retirement.
Client Services Manager
This communication is for informational and discussion purposes only. Alerus does not offer legal or tax advice and plan sponsors should always consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues. Opinions presented in this communication are subject to change without notice.