As employers continue to battle through tough economic times, and dollars and staffs are stretched to the limit, having talented and hard working employees has never been more important to companies than it is right now. Trying to attract new employees can be a struggle as well, and employers need to make sure they are ahead of the curve in the benefits offered. Now is an excellent time to be proactive in reviewing current providers and making changes as needed. Benefits become more valuable to employees if they understand them, leading to better utilization and appreciation.
One area of the benefit arena that employers should address is their current 401(k) provider, so to determine what policies are in place to increase employee participation and to monitor the investment options being offered. Providing employees with ongoing education and communication is key in making sure they are fully utilizing the plan. Service providers should take the initiative in this process by running group meetings to discuss the importance of retirement planning and helping employees decide what level of risk they are comfortable with. Individual employee meetings should also be offered on a quarterly basis. These meetings teach employees to use retirement calculators to get a better understanding of what they are on pace to have at retirement. A recent study by Bruce Pfua and Ira Kay, who co-authored “The Human Capital Edge,” found that “targeted communications and specific advice about the company's 401k plan is just as likely to convince employees to save for retirement as is a high employer contribution match. Employees who received targeted 401k communications saved two percentage points more of their pay than those who did not. Raising match rates from 25% to 100% achieved exactly the same effect -- but at considerably higher cost to the employer.” Providing education and communication will also serve as a reminder of the importance placed on providing a vehicle that can lead to financial security for employees.
Another area of importance is to have procedures in place to properly review current investment options and adherence to an Investment Policy Statement that clearly defines how funds are selected, reviewed and replaced. Also, while “Lifecyle Funds” and “Target Date Funds” are very popular, a deeper understanding of how portfolios are allocated and the inherent level of risk involved is crucial when selecting these auto-pilot options for investment menus. Simply selecting a provider and choosing a menu of investment options will no longer suffice, and in today’s increased government regulatory environment, this can also lead to costly consequences. Creating an internal investment committee to regularly review investment options with service providers and having documentation of these processes on file is also important in making sure plans are meeting their fiduciary responsibilities.
As an employer, if you have implemented a 401(k) plan, you have committed time, resources and costs to provide this benefit. Are your employees aware of the commitment you have made to their future?
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.