Traditionally, 401(k) plans have been a benefit primarily offered by big companies. Small business owners often worry that offering a 401(k) will be too expensive and too complicated.
But that’s changing.
It’s become easier for small- and medium-sized business owners to find affordable 401(k) plans that are easy to implement. This allows companies of all sizes to offer their employees the opportunity to sign up for retirement plans so they can start saving for their future. But once you offer a plan, you need to get your employees on board.
Ahead, we look at why employees sometimes choose not to participate in their employer’s 401(k) plans as well as offer some advice on how to ensure your employees take full advantage of these programs.
Why Aren't Employees Participating in Retirement Plan Offerings?
While retirement planning has come a long way in the past few years, there are still a considerable number of the American workforce who don’t participate. Why? Here are some of the top reasons:
- Lack of awareness: Many employees aren't aware of the retirement plans offered by their employers or they don't understand how these plans work.
- Financial constraints: Some employees may feel like they can't afford to contribute to a retirement plan, even if their employer matches their contributions.
- Immediate financial needs: People may prioritize immediate financial needs over long-term retirement planning. This can include paying off debt, saving for a home, or funding their children's education.
- Lack of trust: Some employees may not trust their employer's retirement plan due to past experiences or negative stories they've heard from others.
- Complexity: Retirement plans can be complex and difficult to understand. If an employee doesn't understand how a plan works, they may be less likely to participate.
- Lack of personalized advice: Employees might feel overwhelmed by the choices and lack the necessary education needed to make the right decisions for their retirement plans.
- Procrastination: Some people might keep delaying enrolling in a retirement plan, thinking they will have time to do it later.
- High fees: The fees associated with some retirement plans can deter employees from participating.
- Job instability: For those with unstable jobs or who frequently change jobs, it may not seem worthwhile to invest in a retirement plan.
All these reasons make a lot of sense. People have many competing financial priorities and in some industries, employee turnover tends to be high. Many retirement plans are confusing, and it can be overwhelming trying to figure out what to invest in.
Penelope’s small business retirement plans have been created specifically for small businesses. Here is what we offer:
- Retirement plans for SMBs and nonprofits. You don’t need to run a Fortune 100 company to provide employees with a retirement plan. We offer businesses of every size access to institutional-level retirement plans without charging asset-based fees.
- Easy to set up and manage. We made onboarding as simple as possible, you can get your business set up with a 401(k) plan in just 15 minutes, and we integrate with most digital payroll providers on the market.
- Flexible and predictable investing. Because we use target date funds, investments are based on the age participants plan to retire. And if unforeseen circumstances happen, plan holders can edit their contributions at any time.
How to Encourage Employee Participation in a 401(k) Plan
As an employer, you might have to actively encourage your employees to enroll and contribute to the company-sponsored 401(k) plan. This helps demonstrate your commitment to your employees' long-term financial well-being, and it can also foster a positive work environment, enhance job satisfaction, and increase productivity. Here are some tips you can take to encourage employee participation:
Improve communication about retirement plans
Provide your employees with clear communication about the retirement plan, how it works, and how they can enroll (or if enrollment is automatic). Employees won’t invest in what they don’t understand.
Start by explaining the plans' details and benefits, and provide regular updates. With Penelope, you can direct your employees to our frequently asked questions for additional support. And if they still have questions, you can have them reach out to our customer service team at any time.
Think about creating an open environment where employees feel comfortable asking questions and voicing their thoughts.
Offer financial education and counseling
It's important to provide your employees with financial education and counseling to further boost their participation in retirement plans. This education should aim to demystify complex financial concepts and empower your employees to make informed decisions about their financial future.
Providing this type of support not only builds confidence but also fosters trust, as they'll see you're invested in their financial well-being. Ultimately, educated employees are more likely to actively participate in retirement plans.
Our retirement planning experts can help guide you through these details. We also made sure our dashboard is intuitive and easy to navigate so that we empower your teams further.
Use incentives and matching to increase participation
By offering matching contributions and other incentives, you will not only boost your employees' retirement savings but also encourage their active participation.
A matching contribution is when you, the employer, contribute a certain percentage to your employee's retirement plan based on their contributions. For example, if your employee contributes 6%, you might contribute a 3% match. Offering a match can encourage your employees to save more. Don’t let them miss out on these additional savings!
Worried about the additional cost of offering an employer match? Reach out to our retirement specialist to hear about tax credits that may be available to help you offset costs.
Simplify the enrollment and contribution processes
To boost participation, you'll want to streamline both the enrollment and contribution processes, making it as easy as possible for your employees to get involved. With Penelope, your eligible employees will be automatically enrolled and be guided to set up their contribution amounts online.
Offer Your Employees Benefits That Matter
Increasing employee participation in retirement plans like a 401(k) is not just about providing the opportunity but actively encouraging and guiding employees to make the most of it. Ultimately, these efforts not only benefit the employees' long-term financial health but can also contribute to a positive work culture, increased job satisfaction, and improved productivity. Together, we can build a future where every employee is invested in their financial security, and every employer is instrumental in making that happen.
In need of the right retirement plan for your employees? Speak to one of our retirement planning experts today.