Why Enhancing 401(k) Benefits Matters for Business Success
For many businesses, offering a 401(k) plan with matching contributions is a tried-and-true strategy for attracting and retaining top talent. However, as competition for skilled employees grows, forward-thinking companies are finding ways to enhance their 401(k) plans beyond traditional matching. By adding innovative features and additional benefits, employers can help employees build a more secure retirement while differentiating themselves in the job market.
In this article, we’ll explore ways to go beyond matching contributions to create a 401(k) plan that not only meets but exceeds employee expectations—making it a powerful tool for both recruiting and retention.
- The Power of Matching Contributions
Employer matching is one of the most valuable aspects of a 401(k) plan. It incentivizes employees to save more for retirement and serves as “free money” for their future. However, to maximize the impact of your match, consider how you structure it:
- Increase Matching Percentage: Instead of the standard 50% match on up to 6% of an employee’s salary, consider matching a higher percentage to encourage more contributions.
- Use a Tiered Matching Structure: To reward higher contributions, consider implementing a tiered match. For example, offer a 100% match on the first 3% of salary, then a 50% match on the next 3%–5%. This approach motivates employees to contribute beyond the basic level.
While a higher match may increase upfront costs, the benefits of a highly engaged workforce and reduced turnover can offer long-term savings.
- Implement Automatic Enrollment and Contribution Escalation
Automatic enrollment and automatic contribution escalation are two features that can significantly boost participation and contribution rates within your 401(k) plan:
- Automatic Enrollment: Enrolling eligible employees automatically at a default contribution rate can increase participation, especially among younger employees who may be hesitant to sign up on their own.
- Contribution Escalation: This feature automatically increases employee contribution rates over time, typically by 1% each year, up to a set maximum. This gradual increase allows employees to save more without feeling a financial pinch.
These features not only enhance the effectiveness of the plan but also demonstrate that your business is committed to fostering long-term financial wellness for employees.
- Offer Roth 401(k) Options for Tax Flexibility
A traditional 401(k) offers tax-deferred savings, but adding a Roth 401(k) option can make your plan more appealing, especially to younger employees or those expecting their tax rate to rise:
- Tax-Free Withdrawals in Retirement: Roth 401(k) contributions are made with after-tax dollars, allowing employees to withdraw funds tax-free in retirement.
- Diversified Tax Benefits: By offering both traditional and Roth options, you give employees flexibility to choose the tax structure that best suits their financial situation.
Providing this flexibility can attract talent who value the option to manage their retirement savings with tax diversification in mind.
- Add Financial Wellness Programs
Financial wellness programs offer employees a more holistic view of their finances, from budgeting and debt management to retirement planning and investment education. Studies show that financial stress impacts employee productivity, so supporting financial wellness can benefit both employees and the business:
- Workshops and Webinars: Provide access to webinars or in-person workshops covering topics like budgeting, debt management, and retirement planning.
- One-on-One Financial Counseling: Partnering with financial advisors to offer personalized guidance can help employees create a financial plan that aligns with their goals.
- Access to Retirement Planning Tools: Many plan providers offer online tools and calculators to help employees visualize how their savings will grow over time.
A comprehensive financial wellness program helps employees gain confidence in their financial future, which can increase engagement and commitment to the company.
- Consider Profit-Sharing Contributions
Profit-sharing contributions are a compelling way to make employees feel invested in the company’s success. By sharing a percentage of profits directly into employees’ 401(k) accounts, businesses can build loyalty and encourage long-term commitment:
- Align with Company Performance: Profit-sharing contributions can be tied to the company’s performance, rewarding employees when the company does well.
- Tax Deductibility: Profit-sharing contributions are generally tax-deductible for employers, making them a financially strategic benefit.
Profit-sharing allows employees to benefit directly from the company’s success, fostering loyalty and creating a stronger connection between employee performance and company outcomes.
- Provide Access to Managed Investment Options
Many employees feel overwhelmed by the investment choices within their 401(k) plan. Offering professionally managed investment options can increase their confidence and improve retirement outcomes:
- Target-Date Funds: These funds automatically adjust the investment mix based on the employee’s age, becoming more conservative as retirement approaches.
- Managed Accounts: Partner with a financial services provider to offer managed accounts that adapt to each employee’s specific risk tolerance, retirement goals, and timeline.
With managed investment options, employees are more likely to stay engaged and confident in their retirement planning, knowing they have support in making investment decisions.
- Consider Non-Matching Contributions for Tenure or Performance
Non-matching contributions are an excellent way to reward employees for their dedication, even if they’re not actively contributing to the 401(k) plan. Consider offering additional contributions based on tenure or performance:
- Tenure-Based Contributions: Reward long-term employees with additional contributions once they reach certain milestones, such as five, ten, or fifteen years with the company.
- Performance-Based Contributions: Link contributions to performance reviews or specific achievements, creating an incentive for employees to excel.
Non-matching contributions show employees that the company values loyalty and performance, increasing retention and fostering a positive workplace culture.
- Flexible Vesting Schedules to Promote Retention
A flexible vesting schedule allows businesses to customize when employees are fully “vested” in their employer-matching contributions, meaning they own 100% of the funds. Adjusting the vesting schedule can help with retention:
- Graduated Vesting: Employees earn a percentage of the employer match each year, with full vesting after a specified period (e.g., 20% each year over five years).
- Cliff Vesting: Employees are fully vested after a specific period, such as three years.
By tailoring the vesting schedule, companies can encourage employees to stay longer, helping reduce turnover and protect the company’s investment in training and development.
- Provide Easy Access and Transparency for Employees
An effective 401(k) plan is one that employees can easily access and understand. To increase engagement, make it simple for employees to view their accounts and track their progress:
- Online Dashboard: Offer an intuitive online portal where employees can track contributions, view balances, and monitor investment performance.
- Mobile Access: Providing a mobile app enhances accessibility, allowing employees to make changes on the go.
- Transparent Communication: Send regular updates and reminders about the plan, contribution limits, and any changes in regulations that may affect their 401(k).
Transparent, accessible tools ensure employees are well-informed and feel empowered to manage their retirement plan effectively.
Final Thoughts: Building a Stronger 401(k) Plan Beyond Matching
While matching contributions are a strong foundation for any 401(k) plan, going above and beyond can significantly improve the value of the plan to employees and set your business apart in a competitive market. By implementing strategies like automatic enrollment, offering managed investment options, and integrating financial wellness programs, you create a comprehensive retirement benefit that aligns with employee needs and business goals.
For businesses looking to foster long-term employee loyalty, these enhanced 401(k) options create a compelling advantage, helping employees feel supported and secure in their financial future.
Global View Capital Management (GVCM) is an affiliate of Global View Capital Advisors (GVCA). GVCM is a SEC Registered Investment Advisory firm headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188-1126. 262.650.1030. Ryan Peca is an Investment Adviser Representative (“Adviser”) with GVCM. Additional information can be found at www.adviserinfo.sec.gov Global View Capital Insurance Services (GVCI) is an affiliate of Global View Capital Advisors (GVCA). GVCI services offered through Experior Financial Group, ASH Brokerage, and/or PKS Financial. GVCI is headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188-1126. 262-650-1030. Ryan Peca is an Insurance Agent of GVCI.
These views do not necessarily represent the views of GVCM or any of its affiliates. Investment involves risk.