By: David I Gensler, MSPA, MAAA, EA
401(k) plans are so ubiquitous that we assume that every employer offers a retirement plan to their employees. But that perception is just that; a perception. There are a fair number of small to mid-size firms that do not sponsor a 401(k) retirement program for their employees. The question is why don’t they?
According to research from Pew Charitable Trusts, the two primary reasons given for not offering a 401(k) plan was that they were “too expensive to set up”(37% of the respondents) or “my organization does not have the resources” (22%).
I find both of those statements curious. For those firms looking to implement a “plain vanilla” 401(k) plan there are many resources out there to get the ball rolling on a 401(k) plan without spending a lot of money on it. As far as not having the resources, if you can remit your payroll taxes (which every company must do) remitting the employees’ 401(k) deferrals is not a lot more complicated than that.
Some respondents said that their mix of employees (low wage earners or short term employees) were not conducive to offering a plan. A surprising number of the respondents (about 17%) said that they do not offer a plan because their employees are “uninterested.”
Of the firms that do offer retirement plans, most employers said that they did so because they wanted to help employees save for retirement, or it helped with recruitment and retention. Finally some of the respondents said that offering a retirement plan had a positive impact on employee performance.
When asked which circumstances would motivate them to start a plan, the most common responses were a change in their financial position or additional government incentives.
For those companies that already offer a retirement plan to their employees, a different survey (this one from MassMutual) sought to explore their employees’ concerns as they approach retirement and what their employers might do to alleviate some of those concerns. Not surprisingly, employees’ concerns centered on a lack of preparation for retirement, struggling to meet ends meet (thus not saving enough now) and potential changes to the health care system.
A majority of the employees expressed a desire for their employer to do more to educate them on saving for retirement. I actually think that employees are hungry for different types of financial information. One of the things employees want to know more about are educational tools about how to save more for retirement. But why stop there? I bet offering employees information about money management and how to best utilize the other benefits that the company offers would be very popular topics. How many employees know how to make up a budget and truly identify what they spend their hard earned money on each month?
As the economy heats up and employers compete for the best employees, I believe that there is an opportunity for some companies to stand out by offering more financial education to their employees.
Programs like these do not have to cost a lot and can pay big dividends by increasing an employee’s loyalty to their employer.