For many businesses, offering employees a 401(k) plan is no longer an option — it’s a competitive necessity. But employees often grow so accustomed to having a 401(k) that they don’t pay much attention to it.
It’s in your best interest as a business owner to buck this trend. Keeping your employees engaged with their 401(k)s will increase the likelihood that they’ll appreciate this benefit and get the most from it. In turn, they’ll value you more as an employer, which can pay dividends in productivity and retention.
Promote positive awareness
Throughout the year, remind employees that a 401(k) remains one of the most tax-efficient ways to save for retirement. Regardless of investment results, the pretax advantage and any employer matching makes a 401(k) plan an ideal way to save.
For example, point out that, for every $100 of pay they defer to the 401(k), the entire $100 is invested in the plan — not reduced for taxes as it would be if it were paid directly to them. And any employer match increases investment potential.
At the same time, make sure employees know that your 401(k) plan operates under federal regulations. Although the value of their accounts may go up and down, it isn’t affected by the performance of your business because plan assets aren’t commingled with company funds.
Encourage patience and involvement
The fluctuations and complexities of the stock market may cause some participants to worry about their 401(k)s — or to try not to think about them. Regularly reinforce that their accounts are part of a long-term retirement savings and investment strategy. Explain that both the economy and the stock market are cyclical. If employees are invested appropriately for their respective ages, their accounts will likely rebound from most losses.
If a change occurs in the investment environment, such as a sudden drop in the stock market, it presents an opportunity for them to reassess their investment strategy and asset allocation. Market shifts significantly impact many individuals’ asset allocations, resulting in portfolios that may be inappropriate for their ages, retirement horizons, and risk tolerance. Suggest that employees conduct annual rebalancing to maintain appropriate investment risk.
Some businesses provide financial counseling services to employees as part of their benefits package. If you’re one of them, now is a good time to remind them of this resource. Employee assistance programs sometimes offer financial counseling as well.
Another option is to occasionally engage investment advisors to come in and meet with your employees. Your plan vendor may offer this service. Of course, you should never directly give financial advice to employees through anyone who works for your company.
A 401(k) plan is a substantial investment in time, money, and resources for any company. Encourage employees to appreciate your efforts — for their benefit and yours. We can help you assess and express the financial advantages of your plan. Contact us today to learn more about how we can help you plan for the future.