Motivating Employees to Save in a 401(K)

by Robert DiNicola

Your company already offers a pension for employees, but now you’re considering adding a company 401(k) plan. Or perhaps you have no company retirement plan at all and would like to start a 401(k) to help your employees save for the days after you give them a gold watch. How do you motivate your employees to save?

Sweeten The Pot

Free money is a good start. Matching at least some of your employees’ 401(k) contributions will boost their participation rate in the plan.

“The biggest thing an employer can do to encourage employee participation is to have a decent match,” says Thomas Jordan, Senior Manager at AXA Equitable. “Many plans match dollar for dollar on the first three percent of deferred contributions. Having a match is a big inducement to contribute. For employees, if a plan offers you a match and you don’t participate at least to that level, you’re giving away money.”

A study by WorldatWork and the American Benefits Institute found that 92 percent of companies that offered 401(k) plans matched employee contributions.

Make It Automatic

Make contributing the default setting. Another way to boost employee participation is to make it automatic, Jordan says. Many companies, 56 percent according to WorldatWork, automatically enroll employees as soon as they become eligible, usually after one year on the job, Jordan says.

“For most people, inertia is a big thing,” Jordan says. “If an individual has to make a point of going to human resources just to enroll to begin deductions, a lot of times they will just keep putting it off.”

On the other hand with automatic enrollment, an employee must make a conscious effort not to participate. Among companies with automatic enrollment, 36 percent reported that 90 percent or more of their employees participated in the plan, the study found. But only 19 percent of those without automatic enrollment claimed 90 percent or greater plan participation.

Make Increases Automatic Too

To boost contributions beyond the minimum, offer an escalating feature to increase the percentage of deferred contributions, Jordan says. Twenty-six percent of the companies surveyed said their plan had both an automatic enrollment and an automatic escalation feature. Most companies surveyed, 97 percent, boosted contributions by one percentage point each year.

Educate Employees

To help employees understand the benefits of saving and the power of compounding interest, run the numbers. Show them how they can join the Millionaire’s Club.

For example, look at a 30-year-old worker who starts with $1,000 in a 401(k), earns $40,000 per year and contributes $4,000 per year with a 3 percent match from his employer. The employee gets a raise of 2 percent per year and an annual rate of return of 7 percent. After 37 years, when he or she reaches the full retirement age of 67, this employee will be a millionaire with $1,106,674 saved.

This article has been written by and obtained from an outside source and is provided for general information purposes only. This material does not constitute an offer or solicitation of any kind and is not intended, and should not be relied upon, as investment, tax, legal, or financial advice or services. Securities offered through AXA Advisors, LLC (member FINRA, SIPC) (NY, NY 212-314-4600); annuities and insurance offered through AXA Network, LLC (AXA Network Insurance Agency of California, LLC; AXA Network Insurance Agency of Utah, LLC; AXA Network of Puerto Rico, Inc.) This article is provided by Robert Dinicola. Robert Dinicola offers securities through AXA Advisors, LLC(member FINRA, SIPC) 1 TULIP COURT EASTON, PA 18045 and offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries. Rockland Financial Group is not a registered investment advisor and is not owned or operated by AXA Advisors or AXA Network. GE-114509(05/16)(Exp.05/18)

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