Steps to Improve Employee Saving

Outside of auto-enrollment, company matching is seen as the #1 reason employees enroll in their company’s retirement plan. It’s very attractive to current employees and acts as a powerful retention tool. Seventy-five percent of new hires at a company offering a 401(k) say the retirement plan provides a compelling reason to stay.¹⁰ A company match is also appealing to future employees, and your recruiters will be grateful as attracting talent just got that much easier. If you don’t offer a match and your competitor does, you might lose that highly valued employee or recruit, costing you much more in recruiting costs in the long run. But if attracting and retaining talent isn’t enough of a reason to offer a match, employers can also deduct company contributions on federal tax returns.

Companies need to get more creative about communicating about retirement saving and plan features. Bland, generic messaging doesn’t move the inert. Determine the best demographics formula for your company and start sharing with them about what’s interesting to each cohort. If you used a generational demographic approach you would probably send Millennials a different message about your retirement plan (“use our retirement calculator to determine retirement readiness”) than you would a Gen X (“are you taking advantage of the catch up provision?”). If you have a significant Spanish-speaking employee base, think about writing materials in Spanish using images depicting Hispanics. Also, think about texting updates and alerts as emails can feel so 2005. Also, make sure plan information and updates are prominently displayed on your benefits homepage. We also encourage employers to have a calendar of communications for their employees regarding their 401(k) plan, so all the communication doesn’t happen around enrollment.

Offering investment and retirement readiness education through the plan’s financial advisor or through the recordkeeper’s website, is vital. Most people are not investing experts, so it is generally seen as a best practice to provide employees tools to understand the basics. If employees are not asking for education, they are either indifferent or likely do not know that they should. Turn employees into inquisitive investors who care about saving for their retirement. Your plan advisor should be willing and available to provide education regularly for employees. If they’re not or very reluctant to do so, you may need another advisor.

Simplify investments: There may be thousands of mutual funds outthere, but they don’t all need to be in your plan’s investment menu. Just like walking down the shopping aisle looking to buy a bar of soap and the shelves are stocked full of hundreds of brands that you’ve never heard of, it becomes much harder to make a purchasing decision. The same applies to directing deferrals into investment elections in a retirement plan. Employees might get stuck with “analysis paralysis” and end up not doing anything or, worse, allocate their deferrals into unsuitable selections. Further, you don’t want to have so many options that some of your staff turns into day traders in their 401(k) account. There are other places to do that, and their retirement account is not one of them. Nor do you want to encourage that behavior when they’re on the job. We also know how the average investor fares by trying to time the market, and it will generally not lead to optimal retirement savings outcomes: ^{Source: Dalbar. Represents average annually compounded returns of equity indices vs. equity mutual fund investors; based on the length of time shareholders actually remain invested in a fund and the historic performance of the fund’s appropriate index. Past performance is no guarantee of future results. Investors cannot invest directly in an index.}