It won’t come as a surprise that business owners view 401ks as advantageous both for their business and their employees. Yet, despite business owners seeing the advantages and value of 401ks, a gap exists in understanding how to effectively communicate 401k benefits to employees, according to a new survey from Nationwide.
And with the Bureau of Labor Statistics reporting 71% of all U.S. workers have access to retirement benefits (which include defined benefit and defined contribution plans), offering a 401k to employees has become necessary in order to competitively attract and retain talent in today’s strong, steady labor market.
Nationwide’s latest research, which surveyed 400 U.S. business owners with 11-500 employees that offer 401ks, finds business owners agree 401ks offer key benefits including attracting and recruiting top talent (88%); tax advantages for both one’s business and employees (88%); improving employee retention (86%); and employees viewing a 401k as a necessary benefit (84%).
The survey data also found that although nearly nine in 10 business owners report their retirement plan provider offers tools and resources to them to help encourage employees to participate, over half of business owners (53%) still struggle with communicating the benefits and encouraging participation among their employees.
This number increases to 60% when looking at female business owners and 65% for younger business owners (aged 18-34 years old). What’s more, 68% of business owners acknowledge it’s their role/responsibility to encourage employees to participate in a 401k offering.
“Our latest survey shows employers are struggling to communicate the benefits of a 401k and encourage participation among their employees, ultimately putting their business and their employees at a disadvantage,” said Eric Stevenson, president of Nationwide Retirement Plans. “This data illustrates that the industry has an opportunity to help business owners bridge this gap and make a meaningful difference in the retirement security of their employees.”
Business owners agree 401k benefits outweigh challenges
While 401k plans have become a standard of sorts as a retirement benefit, business owners still report the following challenges in offering a 401k to employees:
- Financial cost: 45%
- Encouraging and managing employee participation: 41%
- Administrative headaches (i.e. paperwork for plan administration): 37%
- Lack of knowledge around starting or maintaining a plan: 27%
Even with the challenges associated with offering a 401k, an overwhelming majority of business owners (92%) agree that the benefits of offering a 401k plan to employees outweigh the challenges. Business owners ages 35-54 years-old are most likely to agree with this perspective, with nearly all in this age group (99%) agreeing. Interestingly, over three in 10 business owners aged 55+ years-old say they don’t believe there are any challenges in offering a 401k plan.
Helping business owners encourage participation
Nationwide’s data shows nearly two-thirds (64%) of business owners feel it is their role/responsibility to provide details on the benefits of participating in a plan with employees, as well as share information on how to enroll (62%).
In order to cut through the jargon and effectively communicate the benefits of participating in a 401k with employees, business owners can look to their plan provider and advisor for additional guidance.
“A workplace retirement plan, such as a 401k, is among the most valuable employment benefits and a top gauge of retirement preparedness,” Stevenson said. “As such, it’s integral that employers feel equipped to effectively have these conversations with their employees. Talking to a financial advisor is a good first step to not only discuss the resources and benefits available to business owners from plan providers, but to also gain insight into how to thoughtfully distribute this information and material to employees.”
More from the research
Beyond details about helping employers communicate the benefits of a 401k to employees, the Nationwide survey of 400 business owners (with 11-500 employees and who offer a 401k plan) contained some additional noteworthy data regarding the SECURE Act and 401k matching contribution rates. From the study:
- 59% of business owners surveyed believe the SECURE Act would make it easier to offer a 401k plan to employees
- 77% of business owners think passage of the SECURE Act would allow them to offer a 401k plan that rivals those offered at large corporations
401k Contribution Matching:
- 8% of business owners don’t match employee contributions at all
- 31% match 1-3% of contributions
- 43% match 4-6% of contributions
- 19% match 7% or more of contributions
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
