Q and A: What are some of the reasons people don’t participate in our 401(k) program or don’t contribute enough?

Q: We’d like to bolster our 401(k) plan participation and contribution numbers. What are some of the reasons people don’t participate or don’t contribute enough?

A: That has been the subject of recent research by the Pew Charitable Trusts. They looked at employer and employee perspectives on saving, and made some interesting findings. For example, 2/3 of employees at small to mid-sized companies have access to a retirement plan at work, and 68% participate. That translates to 45% of workers at small to mid-sized businesses participating in a 401(k) or similar plan — and 55% not participating. The research found it much more likely for employees with a household income over $100,000 to participate than for lower income workers. They may find it easier to save, and are more likely to need the tax breaks associated with saving in a qualified plan. Even though auto features tend to increase participation and contribution levels, a significant percentage of plans at small to mid-sized companies don’t use them. The concern is often that employees won’t like it — a perception that has been refuted by other research. Take a look at the Pew website for more information: www.pewtrusts.org.

Encouraging your employees to participate in your 401(k) program can help ensure their future financial stability while also managing the risks of your plan failing ADP and ACP testing or being top-heavy. To help increase 401(k) participation, focus on developing a strategy for communicating the plan features to employees.

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