Issue Vol18 Iss3
For employers in the manufacturing industry, a 401(k) has become an important benefit used to attract and retain valuable employees, and to help those employees to retire when the time comes. But when it comes to retirement readiness, a 401(k) plan is only as good as the savings your employees put into it. Far too often, encouraging employees to participate in the company plan can feel like an uphill battle.
Fortunately, I’ve seen the same 401(k) best practices work for manufacturing companies across the country who want to increase plan participation. Businesses can make it easier for their employees to save and make good decisions by focusing on improved plan design, better employee engagement, and clearer communications.
Making Participation Easier
There are a number of 401(k) plan design features that I’ve seen work wonders when it comes to plan participation and helping employees make the most of a 401(k). There’s some work in thinking through which features might be best for your company, but once a feature is added, it can have long-term impact without much more ongoing work for the employer.
- Automatic Features: There are two kinds of automatic features I’ve seen help increase participation rates and enable employees to save more. First, automatic enrollment works by signing eligible employees up for the plan automatically, following some pre-determined standard choices for things like savings rates and investments. Rather than opt in, employees who don’t want to participate have to opt out, making it easier to sign up and start saving. Second, automatic participant deferral escalation can help employees increase the amount they’re saving over time by automatically stepping up deferral rates.
- 401(k) Match: Beyond making plan participation automatic, another great way employers can encourage participation is through incentives like an employer match. In plans with an employer match, the employer agrees to match employee contributions up to a certain amount. For example, an employer can match 100% of employee contributions up to 4% of their salary. Or, if increasing savings is the goal, the employer can stretch their match to 50% of an employee’s contributions up to 8%, incentivizing even more savings without costing the employer anything more.
- Safe Harbor: There are also special kinds of plans that are designed specifically to allow business owners and highly compensated employees to save up to the limits set by the Internal Revenue Service. There are a few versions of these “safe harbor” plans, but the most basic involves eligible employees all receiving 3% employer match contributions annually, regardless of how much they contribute themselves.
In my experience, automatic features like these are best offered in conjunction with better engagement and communication to employees to help them understand and appreciate what’s happening.
Connecting Employees and Specialists
Especially for manufacturing employees who may not be comfortable with the language and financial concepts related to 401(k), I believe quality engagement is key to 401(k) success. Luckily for employers, employee engagement with the company plan is at its best when spearheaded by your 401(k) partners. Look to your service providers for support with the following:
- “De-mystifying” Retirement Savings: Make sure your providers are delivering employee education in language they’ll understand. In my firm’s poll of the employees of small and mid-sized businesses, we found that 71% didn’t know enough to pass our basic 401(k) knowledge quiz.1 This means your service providers must take away as much of the mystery surrounding 401(k), using plain language that will resonate with your employees.
- Direct Employee Contact: As much as possible, encourage your employees to reach out directly to your service providers for assistance. This will save you time and will also give your employees the one-to-one support they may need in order to make confident saving decisions. Also talk to your provider about making periodic on-site visits, where your employees can meet them in person and build more trust.
If your current 401(k) service providers do not provide this level of service to your employees, look for one who can.
Clearer 401(k) Communications
The last piece of the 401(k) participation puzzle is to embrace the power of simple and consistent communications to win over your workforce. For some of your employees, keeping retirement top-of-mind is all it will take to encourage them to sign up and start saving.
- Regular Reminders: Post flyers in the employee breakroom sharing powerful data about how much retirement savings can grow over time. Send out monthly newsletters that include a quick look at retirement topics. In my experience, positive changes can often come from gentle and consistent reminders that are relevant and relatable.
- Retirement Ambassadors: Most companies have a few employees who have a strong commitment to saving for retirement and your company’s 401(k) plan. Enlist them to serve as “retirement ambassadors” to the rest of your team. Co-workers can be influential and serve as an example of what good retirement planning looks like.
- Language Capabilities: Sometimes, when I talk about speaking your employees’ language, I mean that literally. If your employee base largely speaks a language other than English, make it a priority to find 401(k) service providers who can deliver complicated financial education with the right language and cultural considerations for your staff.
Your service providers may be able to help you communicate with your employees by providing you with data and content you can easily distribute. Tell them about your desire to keep retirement top-of-mind, and they may be able to help make this job easier for you.
Improving 401(k) participation has many benefits to manufacturing employers and employees alike. From making it easier to pass compliance tests, to helping more employees prepare for a dignified retirement, there are plenty of good reasons for you to put these best practices to work for your company’s plan.
Nathan Fisher is the Founder and Senior Executive Vice President of Fisher Investments 401(k) Solutions and oversees all aspects of retirement planning services for the firm. As a staunch advocate for small to medium-sized businesses, he meets with hundreds of business owners across the country to help them start, evaluate and optimize their 401(k) plans in order to improve the retirement readiness of both owners and employees. Visit www.fisher401k.com for more information.