401k Participation

[Guest ADP]

We are looking into promoting our 401k) plan to get our participation up. With the stock market down and people losing money, I can see this being a hard sell for those employees who are not in the plan yet. I can see even losing people in the plan. We also have a portion of people who live paycheck to paycheck, so even $5 is hard for them to give up.

I'm looking for things you have tried that helped. Any suggestions would be appreciated!

[papogi]

We had a campaign where anyone who started participation or increased their existing percentage were entered into a drawing for a gift certificate to a local mall. Frankly, I don't know how effective it was overall, but I iknow I increased my percentage by one percent in order to be in the hat. I did not win...

[Guest stryan]

Half of an old adage is to "buy low". Since the market is down, one might condsider this quite an opportunity.

[Blinky the 3-eyed Fish]

I would berate them and get in their face until they agreed to defer.

[Guest ADP]

Blinky -

That's how we got most of our participants. We still have a few diehards, though.

[R. Butler]

Stress the tax benefits. Even if return on investment is down 10-15%, you come out ahead with the tax break. Also low to middle income tax savers get a tax credit.

Having said this, Blinky's idea sounds appealing to me.

[Archimage]

Going along with Butler, it would be a good idea to put some figures together to show them the benefits they are getting from tax deferred savings as well as the tax credit if they qualify.

[GBurns]

It is all in how you sell it to them.

An illustration is necessary showing the earnings even with investment in a Money Market Fund, a GIC or other guaranteed investment (fixed annuity, CD etc).

$120 monthly deferral + employer match $6 = $126 x12 months = $1512 account balance at end of year. A 5% minimum return. Add the fixed interest and show maybe 9%. Stress the tax savings and compound interest growth and you could be showing them close to 15%.

Most of the better 401(k) investment providers have excellent employee communication material, make use of it.

What will your provider do to help? This should be a major factor in your choosing a provider. Who did you choose? Why?

[Guest ADP]

Actually, we are setting up meetings with our provider. They've been out before, but unfortunately, while they know their stuff, they are very dry at communicating it.

These were all good ideas and I appreciate everyone's input. Along, with the meetings, I can probably come up with another form of communicating these ideas. For the lower paid employees, a raffle just might get them to join.

As for the berating, can't say I would do that, but it gave me a good laugh!

[2muchstress]

I'm not a huge fan of negative elections, but you might want to think about it.

Negative elections are when the participant automatically would defer a set percentage (say 3%) when they became eligible. So rather than having to elect to defer, they must elect not to.

Although, it could really tick them off when they got their first paycheck with the deferral.

[Brian Gallagher]

What kind of match or profit sharing (if any) are available? instituting or upping a match might be a good idea. accelerating vesting is another potential idea. offer loans. maybe safe harbor contribs so you really don't have to worry about participation--ADP/ACP/Top Heavy would be satisfied.

also, an extreme measure might be to find a new provider. my company has a good prototype product [shamless plug!!]

[david rigby]

Selling the tax benefits is a good idea, but I have found that selling the match is even better. Although the attorneys out there probably don't like it, I am fond of the phrase "free money".

[Kirk Maldonado]

I've seen studies that show that employee education (on the tax benefits of savings) is far more effective in increasing participation than a match.

[Guest JimJ]

Hire an independent firm who specializes in employee communications. I only say this because i do it for a living (another shameless plug), but a strong, custom, focused, & well-communicated program will certainly add value and prove beneficial. Determine the unique benefits of your plan and incorporate the tax savings (including the new tax credits) into an easy to understand marketing campaign. Lastly, specifically target non and low deferring employees and use actual personal data (current age and salary) to demonstrate what they are potentially giving up by using market, retirement age, and pay raise assumptions and combining the employer match to prove your points. This has proven to pay dividends for our clients.