Why Your Employees Aren’t Contributing to Your Company Plan
When we meet with business owners to discuss their current company retirement plan, many have a goal to use their 401(k) as a marketing tool to attract and retain quality employees. However, a big frustration for many business owners is that employees are simply not signing up for their plan.
Why aren’t employees signing up, and how can you encourage more participation? When we hold employee education and enrollment meetings we find many employees aren’t participating because of questions they have, such as:
1. Can I wait until next year?
Many employees procrastinate signing up for the company plan because they feel that it will take too long or be too complicated. By making enrollment simple, you will find more of your employees willing to sign up. At the same time, we always explain the value of compounding interest to employees, stressing that the earlier they start contributing the faster their 401(k) will grow.
2. Why should I contribute?
When we meet with employees, we break down some of the following reasons why they should contribute:
- If a company offers a match, not contributing to your plan is comparable to turning down a raise.
- Since contributions are taken out of your paycheck pre-tax, your payroll taxes are reduced.
- The money contributed to a 401(k) will grow tax deferred, so you won’t have to pay taxes until withdrawals are made, at which point most people are in lower tax bracket.
3. How is my money invested?
This question scares too many new investors. However, after having individual meetings where we break down how the investments work, employees start to feel more comfortable and understand their choices. In addition, there are many great tools to help new investors make it simple. Plans today even have default funds with a custom risk tolerance based off of an employee’s birthdate.
4. Will my small contribution really matter?
Yes, every small amount matters. As Marguerite wrote previously, the sooner you save, the more your investments will grow. Saving a smaller amount earlier can often result in higher savings then if you delay and start saving a larger amount when you’re older.
You might not think your contribution will amount to much, but consider the below chart, which projects how much can be accumulated by deferring varying amounts of a $40,000 salary over 35 years. Even just by saving 3 percent ($1,200/year) over 35 years you can accumulate $592,956. The chart is based on retiring at 65, current savings of $25,000 and an average return of 8 percent.
At Legacy, we understand that recruitment and retention have a direct impact on your company’s growth. From plan design and reporting payroll, we have the experience to make your plan easy to administer, as well as make your benefits a tool to attract and retain the right employees. Contact us today to see how we can help your company’s benefit plan be a tool to your success.
