June 2023
8 Strategies for Plan Sponsors to Maximize Retention & Recruitment
In today's competitive job market, retaining and recruiting top talent has become a significant challenge for employers. To overcome this obstacle, companies need to go beyond traditional perks and benefits. A well-structured and optimized 401(k) retirement plan can be a desirable proposition to attract top-tier recruits and increase current employee satisfaction, while also enhancing their financial literacy.
In this article, we will explore eight strategies that plan sponsors can implement to leverage their 401(k) plans for employee retention and recruitment.
1. Provide Diverse Investment Options
One size does not fit all with 401(k) plans. Employees have varying financial goals, risk tolerances, and investment preferences. To ensure your plan is attractive to a broad range of employees, provide diverse investment options.
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- Include a mix of low-cost index funds, actively managed funds, and target-date funds.
- Consider offering a Roth 401(k) option alongside the traditional pre-tax contributions, as it allows employees to take advantage of tax-free growth potential.
2. Offer Automatic Enrollment & Contribution Escalation
Besides investment options, consider adding features that address employees' individual needs, such as automatic enrollment and contribution escalation. These features streamline the saving process and help employees maximize their retirement savings.
3. Arrange Employee Education
Even the most comprehensive 401(k) plan will not yield the desired results if employees do not understand its benefits or know how to use it effectively.
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- Provide clear and concise materials that explain the plan's features, investment options, and the importance of saving for retirement.
- Consider conducting regular workshops or webinars to address common questions and educate employees on financial literacy and retirement planning.
- Offering one-on-one meetings with your advisor.
Investing in employee education and communication is crucial to ensure your plan is well-utilized and appreciated.
4. Leverage Technology to Enhance Communication
Get your 401(k) plan set up for success by providing easily accessible resources, clear communication, and employee beneficial technology.
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- Use user-friendly online platforms that allow employees to access their accounts, review performance, and make adjustments easily.
- Consider implementing tools that provide personalized retirement projections based on individual savings rates and investment choices.
- Ensure that your plan is easily accessible for employees through multiple channels.
- Consider offering in-person support from retirement plan specialists or dedicated HR representatives.
Having accessible resources and support will not only increase participation rates but also improve overall employee satisfaction with the plan. You can empower employees to make informed decisions and feel confident about their retirement planning, ultimately leading to improved retention and attraction.
5. Invest in your Employees' Future
Employee Matching
One effective strategy to maximize the appeal of your 401(k) plan is to offer employer matching contributions and profit-sharing arrangements. Matching contributions reward employees to contribute more of their own income to the plan, effectively boosting their retirement savings and shows that the company is invested in their employees’ financial well-being, leading to increased loyalty and engagement.
Profit Sharing
Profit sharing arrangements allow employees to share in the company's success by receiving a portion of profits contributed directly to their retirement accounts. This not only provides an additional source of retirement income, but also reinforces a sense of ownership and alignment with the company's goals.
6. Recognize Long-Term Commitment
401(k) vesting strategies can play a crucial role in increasing employee retention and recruitment by providing incentives and rewards tied to long-term commitment.
Here are a few vesting strategies that can help achieve these goals:
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- Graded Vesting: With graded vesting, employees gradually gain ownership of their employer's contributions. This approach encourages employees to stay with the company for an extended period, as they receive increasing benefits.
- Cliff Vesting: In contrast to graded vesting, cliff vesting involves a specific time period (usually a few years) before employees become fully vested. This strategy encourages employees to commit to the organization for at least the specified period, providing a powerful incentive to stay and reap the benefits.
- Immediate Vesting: Immediate vesting is a strategy where employees become fully vested in their employer's contributions from the moment that they participate in the 401(k) plan. This approach can be attractive to potential candidates during the recruitment process, as it eliminates any waiting period for acquiring employer contributions. Immediate vesting can be a powerful tool for attracting top talent.
- Stretch Vesting: Stretch vesting extends the time required for employees to become fully vested, often beyond the standard vesting schedule. This strategy aims to foster long-term commitment and loyalty among employees, as they have a higher incentive to remain with the company to achieve full vesting.
When designing a vesting strategy, it is important to consider your organization's goals, industry norms, and the preferences of your employees. It is also advisable to consult with legal and financial professionals to ensure compliance with applicable laws and regulations.
7. Simplify Plan Administration and Improve Plan Access
Complicated administrative processes can be a deterrent to employees participating in a 401(k) plan. Therefore, it is crucial to streamline plan administration and make it as simple as possible.
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- Consider partnering with a plan provider that offers user-friendly online tools for enrollment, contribution changes, and beneficiary updates.
Automating administrative tasks not only reduces the burden on HR teams, but also ensures a seamless experience for employees.
8. Regularly Evaluate and Benchmark Your Plan
To ensure your 401(k) plan remains competitive and attractive, it is crucial to evaluate its performance regularly and benchmark it against industry standards.
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- Stay updated with the latest regulations and consider engaging with retirement plan consultants to conduct plan audits and identify areas for improvement.
Benchmarking your plan against other plans in your industry helps you determine if your plan is competitive in terms of features, costs, and employee outcomes. If your plan falls short, consider making necessary adjustments, such as lowering plan fees, expanding investment options, or enhancing employer contributions.
Conclusion
A well-designed 401(k) plan can be a game-changer, allowing plan sponsors to position themselves as employers of choice in today's competitive job market. This proactive approach to plan evaluation and enhancement shows a commitment to providing a top-tier retirement benefit, ultimately attracting and retaining high-caliber employees.
A robust 401(k) plan is not just a retirement benefit; it is a powerful tool that aligns employees' long-term financial goals with the success of your organization.
DISCLAIMER: This newsletter is intended to provide thought-provoking commentary. The information presented herein has been obtained from and is based upon sources and vendors deemed to be reliable, but may be incomplete. Parkside Financial Bank Trust does not itself endorse or guarantee, and assumes no liability for, the accuracy or reliability of any third party data or the financial information contained herein.
Parkside Financial Bank Trust is not a tax advisor. All decisions regarding the tax implications of your investments should be made in consultation with your independent tax advisor. We will work with you independent tax and/or legal advisor(s) to help create a plan tailored to your specific needs. The material contained herein is for informational purposes only and does not constitute tax advice. Investments are not insured by the FDIC or any federal government agency, provide no bank guarantee, are not a deposit and may lose value.
