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What’s in a good 401(k) plan? These 7 Elements Can Help Attract and Retain Employees

by Tim AustinJanuary 24, 2014 8:54 AM

According to a Wells Fargo study, 37% of people expect to work until they die. That’s an alarming number, but one that you can use to your advantage.

Most people would rather spend their later years comfortably enjoying their retirement, so by offering a quality 401k plan, you give your business a step up in attracting and retaining quality employees.

Avoid Financial Confusion: Educate Your Group

Before we give you the key elements to a great 401k plan, it’s worth taking a moment to remind you that financial choices can be intimidating and confusing for many employees. One way you can help is by making an effort to ensure employees are educated about their choices. These resources will help make sure everyone is on the same page.

 

What Employees Look for in a 401(k) plan. Image 401K by 401(k) 2013 is licensed under CC by 2.0

What is a 401(k) Plan? [Infographic]  

Guide to your 401(k): Everything you need to know about 401(k)s

A handy guide from CNN Money that shares:

  • Top things to know about 401(k)s
  • The virtues of a 401(k)
  • How to invest in a 401(k)
  • Early withdrawals and loans
  • Rollovers
  • Taking distributions in retirement

7 Things Employees are Looking for in a Good 401(k) Plan

 

1. Generous Employer Match

 

According to findings from a 2013 survey by trade publication PlanSponsor.com, the common match amount increased to be $1 per $1 on the first 6% of employee deferrals, with 19% of employers reporting this formula, which is up from 10% in 2011. 
 
Previously a match of $0.50 per $1 on the first 6% was the most popular.Increasing the amount employers are willing to contribute may help encourage those employees to save at more robust rates, and shows employees you care about investing in their future. 
 

2. “Day One” Eligibility

 
The PlanSponsor.com survey also showed that 76% of plans now allow workers to begin making pre-tax contributions immediately upon hire, which is up from 71% in 2011. In addition, 53% of plans have corresponding immediate eligibility for employer-matching contributions, while 50% of plans that offer a non-matching employer contribution allow immediate eligibility. Providing new hires with immediate eligibility helps ensure they don’t lose ground in terms of saving. 
 

3. Immediate Vesting Schedule

 

The best plans offer immediate vesting of employer contributions, according to the Bureau of Labor Statistics only 22% of employers offer immediate full vesting. Nearly half of those use a graded vesting schedule in which the employees’ right to company contributions increases gradually (say, 20% per year) until they are fully vested. 
 

4. Low, Transparent Plan Fees

 

Administrative fees cover record keeping, accounting, legal services, marketing and investor education services.  Typically employees will see these fees in a hard dollar amount on their statement.
 
Investment fees cover expenses associated with managing the plan’s funds. Investment Managers usually report their performances net of these fees. Both types of fees are taken from your employees’ 401k assets.
 
Finding plans with lower fees and educating your employees on what the fees are being applied to can help set your company’s 401k package apart from your competition.
 

5. Investment Options-But Not Too Many

 

Select only a handful of solid investment options. This can include individual mutual funds, asset allocation funds, and target-date funds, many of which automatically become more conservative as the employees approach retirement. 
 
“Study after study shows the more investment choices a company gives their employees, the less likely they are to participate because they feel overwhelmed,” says Veronica Lee, Senior Vice President of Client Services with 401k Advisors in Aliso Viejo, Calif., an independent consulting firm.
 

6. Automatic Enrollment & Raises

 

91% of plans offer automatic enrollment to new employees, unless they opt out, which helped boost participation rates in 401(k) plans nationwide. Especially among younger workers who may not feel an urgency to contribute. 
 
Automatic escalation provisions, in which the amount of pretax money that employees contribute toward their 401(k) plan automatically increases annually, also shows that a company is looking out for their employees. 
 

7. Give Employees Access to Expert Financial Resources

 

Many employees have limited investment knowledge, so employers have significantly increased the availability of outside investment advisory services. Three out of four plan sponsors now offer access to such services, the most popular being one-on-one financial counseling (59%), online guidance (55%), managed accounts (52%) and online advice (46%) according to a survey from PlanSponsor.com.
 

What else do you look for when considering the 401k plan you’d like to offer your employees? Let us know your thoughts in the comments below.

 
 
 

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