Introduction

Are you finding motivating your workers to join your company's 401(k) plan challenging? Would you like to boost participation rates and support your employees in planning for their retirement? If the answer is yes, there are numerous approaches you can take to encourage more employees to sign up for your plan. This informative blog post will explore tips and proven methods for increasing plan participation in your 401(k) program.

Understanding the Retirement Planning Crisis

It has been found that a significant portion of adults in the United States, around 43%, do not feel confident about their chances of having a comfortable retirement (YouGov, 2023). Despite the availability of retirement plans, such as 401(k) plans, to over 73% of Americans, only 56% participate in their employer's 401(k) plan (Bureau of Labor Statistics, 2023).

When looking at the percentage of employees who participate in a 401(k) plan that does not have automatic enrollment, it is found that only 29% of Americans participate. 71% of employees participate in employer-sponsored retirement plans with automatic enrollment (Bureau of Labor Statistics, n.d.).

To sum up, most Americans lack confidence in their ability to retire comfortably. Despite having access to a retirement plan through their employer, most people do not actively participate in such plans and fail to address this issue unless they are automatically enrolled in a retirement plan. This highlights an ongoing concern about retirement among Americans.

According to the World Bank, the average life expectancy for an American is 77.28 years (The World Bank, 2024). In the United States, the average retirement age is 61 years old. This implies that, on average, 20% of an individual's life will be spent in retirement. This is a considerable amount of time to live without a steady income.

Strategies to Increase Enrollment

Offer a Company Match

One effective way to motivate employees to participate in a 401(k) plan is by offering a company match program. This program allows employees to receive a certain percentage of their contribution as a match from the company. 

For instance, if an employee contributes one dollar to their 401(k) plan, the company will also contribute a percentage. The company match program provides a strong incentive for employees to save in their retirement plans as it increases the overall value of their contributions.

For example, if an employee contributes 4% of their salary to their 401(k) plan, the company may match that contribution with an additional 4%. Consider offering a company match program to encourage your employees to save for retirement.

Simplify the Enrollment Process

One of the most effective ways to encourage greater participation in a company plan is to simplify the enrollment process. This can be achieved by giving employees clear and concise instructions, minimizing the required paperwork, and even introducing an online enrollment platform. 

An online platform can significantly simplify enrollment, allowing employees to sign up quickly and easily with just a few clicks. Based on our experience, the most successful programs provide comprehensive and user-friendly instructions and links to make the enrollment process seamless.

Automatic Enrollment

Automatic enrollment is a 401(k) provision that allows companies to automatically add employees to a retirement savings plan. This means that a percentage of an employee's income will be automatically deducted and contributed to the company's 401(k) plan. 

Enrollment effectively increases employee participation in retirement savings plans. Employees generally do not express dissatisfaction with early investment contributions; many express regret about not starting their retirement savings earlier.

Communicate the Benefits

Many employees don't enroll in a 401(k) plan because they don't understand the benefits. Take the time to educate your employees on the advantages of participating in the plan, such as tax-deferred savings and the potential for compound growth over time. Use clear and straightforward language to explain how the plan works and how it can help them reach their retirement goals.

De Minimus Incentives

Section 113 of the SECURE Act 2.0, a recent law passed by Congress, allows employers to provide de minimus financial incentives to their employees to encourage participation in 401(k) and 403(b) plans. These incentives, however, should not be paid for using the plan's funds, nor can they include matching contributions. 

Congress has offered an example of a small gift card as an acceptable incentive. The IRS has provided further guidance on this topic through notice 2024-02. This new law presents an excellent opportunity for employers to motivate employees to save for retirement without incurring high costs.

A de minimis financial incentive is a small financial reward given to employees. To be considered "de minimis," it cannot exceed $250 in value. This incentive is only available to employees who do not have a 401(k) or 403(b) salary deferral election. The reward is not subject to specific rules, so the plan qualification, testing, and deductibility timing rules do not apply to them.

However, it's important to note that the incentive is considered income or remuneration for the employee. The gift is included in the employee's gross income as wages subject to employment tax withholding and reporting.

It's also worth noting that the de minimis incentive can be given in installments. For example, if a plan provides a $100 gift card initially with a promise to provide an additional $100 gift card a year later, but only if the employee continues to defer at that later date, then the $200 total amount of gift cards is still considered a de minimis financial incentive.

Provide Financial Education

Another way to increase plan participation is to provide financial education to your employees. Offer workshops and education on budgeting, debt management, and retirement planning. This type of education empowers employees to make informed decisions about their finances and future.

Regularly Review and Update the Plan

Finally, it's essential to review and update your 401(k) plan to ensure that it's meeting the needs of your employees. Conduct surveys to gather employee feedback on the plan's features and benefits. Use this feedback to make improvements or adjustments to the plan as needed.

Conclusion

In conclusion, increasing plan participation in your 401(k) plan requires a combination of incentives, education, and communication. By offering a company match, simplifying the enrollment process, communicating the plan's benefits, providing financial education, and regularly reviewing and updating the 401(k) plan, you can help your employees prepare for a better retirement.

CUI Wealth Management can help you put together strategies to increase enrollment and participation. We are retirement plan advisors located in Salt Lake City, Utah.

Bibliography

1. Bureau of Labor Statistics. (2023, September 29). TED: The Economics Daily image. Retrieved from www.bls.gov/: https://www.bls.gov/opub/ted/2023/73-percent-of-civilian-workers-had-access-to-retirement-benefits-in-2023.htm#:~:text=In%20March%202023%2C%2073%20percent,was%2077%20percent%20in%20March.

2. Bureau of Labor Statistics. (n.d.). Data Retrieval Tools. Retrieved from data.bls.gov: https://data.bls.gov/cgi-bin/dsrv

3. The World Bank. (2024, February 12). Life expectancy at birth, total (years). Retrieved from data.worldbank.org: https://data.worldbank.org/indicator/SP.DYN.LE00.IN

4. YouGov. (2023, November 30th). How much does the average American have in retirement savings? Retrieved from business.yougov.com: https://business.yougov.com/content/48009-how-much-does-the-average-american-have-in-retirement-savings