While it’s crucial to foster a positive work culture and build a reputation as a caring employer, evaluating the benefits you offer is equally important. With inflation and the rising cost of living, nearly 79% of Americans believe the country is facing a retirement savings crisis, and 55% are concerned with securing enough financial stability for their retirement.
Financial insecurity can be a major stressor. It can affect productivity, leading to disengagement and absenteeism in the long term. You can alleviate some of this stress by offering a 401(k) plan to help your team prepare for retirement. Most people aim to spend their later years comfortably enjoying their retirement, so providing a quality 401(k) plan can help your business attract and retain quality employees.
Avoid Financial Confusion: Educate Your Group
Retirement is not always straightforward, as financial choices can be intimidating and confusing for many employees. However, understanding retirement plans like a 401(k) is critical. Ensure you’re taking the time to review educational resources or training with your team to eliminate confusion and simplify choices.
Seven Elements Of A Competitive 401(k) Plan
1. Generous employer match
A generous employer match is one of the most sought-after features in a 401(k) plan. An employer match is when an employee contributes a portion of their salary to their retirement account, and the employer matches a certain percentage of that contribution, effectively adding free money to the employee's retirement savings. According to Vanguard's annual report on investing behavior, employers' average match was 4.6% of pay, while the highest percentage was 6.99%.
A higher match not only demonstrates that you value the long-term financial wellness of your workforce but also serves as a powerful incentive for employees to contribute more to their retirement accounts. It effectively doubles the impact of their contributions, making it a highly attractive benefit. Employees view a strong match as a direct investment in their future, which can be a critical factor in recruitment and retention. By offering a generous employer match, you can differentiate your company in a competitive job market and build a stronger, more loyal team.
2. “Day one” eligibility
"Day one eligibility" refers to a policy where employees are eligible to participate in certain benefits, such as a 401(k) plan from their first day of employment. This means that new hires do not have to wait through a probationary period or a set number of days before they can begin contributing to a retirement plan. Providing new hires with immediate eligibility helps ensure they don’t lose ground in terms of saving. Seventy-four percent of plans now allow workers to make pretax contributions immediately after hire. In addition, 53% of plans have corresponding immediate eligibility for employer-matching contributions, while 50% of plans that offer a non-matching employer contribution allow immediate eligibility.
3. Immediate vesting schedule
An immediate vesting schedule allows employees to gain full ownership of employer contributions from the moment they are made. Unlike traditional vesting schedules, which may require employees to stay with a company for several years before they can access the full benefits of their employer's match, immediate vesting grants instant control over contributions. It gives employees the peace of mind that the contributions made on their behalf are truly theirs to keep, regardless of their tenure with the company.
While it might seem counterintuitive, offering an immediate vesting schedule can be a powerful tool to attract top talent, especially in competitive industries. It signals a commitment to your team’s financial security. It shows that you’re confident in your business's value without the need to tie employees down with restrictive vesting terms. Additionally, it can lead to greater employee satisfaction and loyalty, as workers feel more secure in their financial planning and more appreciated by their employer.
4. Low, transparent plan fees
Typically, 401(k) plans have administrative fees that charge you to maintain the account. Admin fees cover record keeping, accounting, legal services, and investor education services. Investment fees on the other hand cover expenses associated with managing the plan’s funds.
Both types of fees are deducted from your employees’ 401(k) assets. Finding plans with lower fees and educating your employees on how the fees are being applied can help set your company’s 401(k) package apart from your competition.
5. Investment options
When finding a 401(k) plan, select only a handful of investment options. This can include individual mutual funds, asset allocation funds, and target-date funds, many of which automatically become more conservative as the employees approach retirement.
While offering choices is beneficial, it's important not to overload your team. It’s possible to present employees with too many options. Researchers have found that for every 10 options added to your plan, participation drops by 1.5-2%. To avoid overwhelming your employees, be selective in the choices you put in front of your team.
6. Automatic enrollment and raises
Automatic 401(k) plan enrollment has gained popularity for its ability to simplify retirement savings. With automatic enrollment, employees are enrolled in the company's 401(k) plan by default, often with a pre-set contribution rate, unless they choose to opt-out.
Automatic enrollment can significantly increase participation rates in 401(k) plans by nearly 15%, particularly among younger or new employees. It eliminates common barriers to entry, such as the initial sign up or the uncertainty about how much to contribute. By making retirement savings the default option, you can help your staff build financial security from day one.
In addition to automatic enrollment, including automatic contribution raises (often referred to as automatic escalation) further enhances the effectiveness of a 401(k) plan. Automatic raises typically increase an employee's contribution rate by a set percentage each year, usually aligned with annual salary increases or at the start of a new plan year.
7. Give employees access to expert financial resources
Providing employees with access to expert financial resources is essential to a well-rounded 401(k) plan. Many employees, especially those new to investing or retirement planning, may feel overwhelmed or uncertain about maximizing their 401(k) options. By providing access to financial advisors, educational workshops, and online tools, employers can empower their workforce to make informed decisions about their financial future.
401(k) Plans With GMS
If you’re looking to offer a competitive retirement plan but don’t have the time or energy to dedicate to finding one, we can help. Partnering with a professional employer organization (PEO), like GMS, ensures you can offer the best plan for your team without the hassle. Our retirement experts will help you find the best options for you and your team to remain competitive in today’s tightening labor force. Contact us today and connect with one of our experts!