Offering and running a 401k program requires plan sponsors to invest both time and money, but research shows that there is a payoff.
A recent survey from Betterment for Business found that two-thirds of job seekers say a 401k plan is important when considering a job offer. A Willis Tower Watson survey revealed that 75 percent of new hires are more willing to stay with a company that offers a strong 401k plan.
But even more importantly, a 401k plan can make a substantial difference in reducing the financial stress of plan participants, which can detrimentally impact every aspect of a person’s life. It also impacts plan sponsors: The 8th Annual PWC Employee Financial Wellness Survey found that financial stress can:
- Decrease employee performance
- Decrease productivity
- Increase absenteeism and presenteeism
- Increase employee turnover
However, by taking advantage of an employer-sponsored retirement savings plan, financial stress is reduced, which is beneficial to both plan sponsors and participants.
Of course, this participation is critical to the plan’s success.
Communication is key
Employees must be aware of the plan in order to take advantage of it. Effective communication should:
- Use multiple mediums: Be sure to use a variety of communication methods to ensure that potential plan participants are getting the message. Consider such things as email, newsletters, flyers, videos, websites, meetings, and apps.
- Tailor messages: Not every employee needs the same information about your 401k program. Older employees, for instance, may need more information on fast-tracking their retirement, while younger employees could benefit from an understanding of compounding interest. Research shows that personalized communication can increase participation by 6 percent.
- Communicate regularly: Learning about the 401k plan when hiring is important, but this should not be the last time a potential plan participant receives information. A National Association Plan of Advisors (NAPA) study found that communicating with employees about the 401k program at least quarterly increases participation rates by 4 percent.
Once you are providing the right communication, the next thing you can do to boost participation rates by offering a financial wellness program.
Financial wellness programs increase participation
In addition to knowing that the 401k plan exists, employees need to understand the benefits of participating. A holistic financial wellness program, coupled with appropriate communication by plan sponsors, can help establish the value of participating. A recent Enrich case study shows that a third of employees who engaged with the financial wellness program increased their 401k participation rate.
Financial wellness education should teach employees about financial topics, including how the 401k can help them meet their retirement goals. This education can also help employees understand how the 401k can:
- Lower their taxable income
- Permit direct deferrals of before- and after-tax contributions
- Provide tax-free retirement savings growth
The most effective financial wellness programs provide personalized information and many different learning methods including games, videos, tools and quizzes.
By providing the right communication and financial wellness education, you can help employees get the most from your 401k plan.
Kris Alban is executive vice president of iGrad, a San Diego-based financial technology company that provides artificial intelligence-powered financial wellness solutions to employers, financial institutions, colleges, and universities. Its Enrich Financial Wellness platform is used by more than 20,000 employers and more than 300 financial institutions.
Kris Alban is Executive Vice President of Enrich Financial Wellness.
