5 Tips for Educating Employees About Their 401(k)

401(k) form
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On average, millennials — who currently make up the largest generation in the U.S. labor force — start saving for retirement at the impressively young age of 24 years old. This beats out Gen Xers by several years and Baby Boomers by over a decade.

However, about 31% have access to a 401(k) but aren’t contributing to it. And why is that? In some cases, they may need some more education around why a 401(k) is important and help with kicking off their contributions. This is where employers can step in and step up to assist their employees.

Why 401(k) Education Is Needed

Providing an avenue to save for retirement is a classic perk that larger employers have offered to their employees for decades. Often, along with providing access to a 401(k) account, employers will also match contributions up to a certain point.

In recent years, even small business 401(k) plans have become increasingly common as technology has streamlined the ability to offer retirement savings plans regardless of the size of an enterprise.

While providing a 401(k) plan for your employees is an excellent first step, though, truly invested employers should strive to go further. Even if many of your employees have enough knowledge to take advantage of a retirement plan, they typically will do so with a “set it and forget it” attitude, simply shoveling money into the account and leaving it to “do its thing.”

However, if an employer truly has their employee’s welfare in mind, they should make an effort to go beyond offering a 401(k) by genuinely attempting to educate their staff on how to make the most of their faithfully saved funds.

Tips to Educate Employees About Their 401(k)

As an employer, you want to educate your employees on how to master their retirement planning. Keep the following suggestions in mind as you create a strategy to provide further retirement education for your particular workforce.

1. Keep it Simple

Always remember, your employees don’t avoid managing their retirement funds simply because they’re lazy. They have other responsibilities and priorities that often take precedent. With limited time available, it’s essential that you maintain a simplistic perspective in your educational efforts.

Don’t strive to create Wall Street junkies. Look for ways to give genuinely beneficial, easy-to-understand advice, such as avoiding emotional selling and buying or being consistent with saving.

2. Outline a Clear Investment Path

Try to provide specific blueprints for how employees should be handling their money, especially based on their age. For instance, if an employee is older, they may want to stick with a safer, risk-averse model, whereas a younger investor can afford to take risks early in their saving career.

3. Provide Reminders

As an employer, you can show a distinct concern for your employee’s retirement wellbeing by proactively sending reminders when adjustments or changes can be made on their accounts.

For instance, if an employee’s retirement contributions can be adjusted after a promotion leads to a pay increase, you can send them a brief, unobtrusive reminder that they can increase their 401(k) deferred contributions in correlation with the change. This helps by highlighting something they may have forgotten in the hubbub of changing responsibilities and budgets.

4. Schedule 401(k) Meetings

Individual, event-based reminders aren’t the only way to jog an employee’s memory, either. Another helpful 401(k) resource that you can provide for your employees comes in the form of 401(k) meetings. These can be held once or twice a year and should aim to provide an opportunity for your employees to focus on the state of their retirement savings.

If conducting a meeting of this nature during work hours isn’t practicable, at the least, it’s worth regularly encouraging those who are actively saving to set up a meeting with a financial provider. If you do so, it’s important to do your research beforehand so that you can provide a quality recommendation for a provider that they can trust.

5. Give Financial Advice

Finally, look for simple-yet profound ways to give financial advice to your employees. This can come in the form of both broad concepts and specific activities, such as:

  • Avoiding emotions: 99% of long-term investing consists of doing nothing, but restraining yourself from selling your assets during a downturn in the market requires careful educational preparation and mental fortitude.
  • Don’t withdraw cash: Strive to impress on your employees that they should never withdraw cash from their retirement funds unless it’s a genuine emergency.
  • Remain diversified: It’s cliché for a reason, keeping all of your financial eggs in one basket is always a bad idea.
  • Balance risk: As previously mentioned, age should be a major factor here, but there are other ways to maintain healthy risk within your portfolio as well, such as diversification and logical high-risk, high-reward investments that only make up a fraction of your overall savings.
  • Encourage consistent saving: It’s always important to keep up those contributions, especially early in one’s career. Don’t let life events derail you from saving for your future if it’s at all possible.

There are many ways to provide educational advice to your employees regarding their 401(k) plans. The most important thing is that you, as their employer, take the time to proactively look out for their financial wellbeing. This show of concern serves as an employment benefit, in and of itself, as it demonstrates an active growth-oriented mindset towards your staff’s financial wellbeing, and it will likely be reciprocated with loyalty, engagement, and productivity.

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