Sub-Par or Superstar
401(K) and Increased Profit
By Robert DeVries
401(k) plans are rather ubiquitous today. If your business doesn’t offer one, it could be held against you in the court of employee recruitment and retention. Even if you do have one, that very likely could be taken for granted.
So, as a matter of necessity, to remain competitive in the marketplace, you have a 401(k) plan for your employees and that “box” is checked. It is included in the list of employee benefits you provide along with health insurance and paid time off. A brochure detailing enrollment and plan specifics is handed to new employees when they are hired.
Then, after a few years of having your 401(k) plan up and running, you feel something just isn’t right. Many employees are not taking advantage of the tax savings available to them by deferring some of their pay into the 401(k) plan, even though you offer matching contributions from the company. Very little educational information is provided to help employees understand the plan and how to take advantage of what is available to them. When employee educational materials are made available, few employees comprehend how to personally use the information since it is confusing and general in nature.
Tools for Employers and Employees
To help address this unsatisfactory situation, you take advantage of the free reports I describe in my book “The Brighter Future 401(k).” Here is a summary of those reports:
- The Social Security Optimizer Report
- The 10-1-Now Mantra Chart
- The Industry Vendor Benchmarking Report
- The Employee Gap Statement
- The Retirement Readiness Report
By benchmarking your plan against what is currently available in the 401(k) plan industry, you begin to see why your plan is not working as well as it could. You may find you have been paying top dollar, but not getting top service or performance. You decide to implement the following Brighter Future 401(k) Actions Steps contained in my book.
You create an Educational Policy Statement that will focus on specific metrics of success you want to achieve in order to impact your employees’ retirement readiness. There are four pillars to retirement readiness we can track: portfolio allocation, savings rates, years to retirement, and the income replacement ratio. Those pillars can contribute to the participant’s retirement goals. You then calculate where your employees are now in each of these areas to serve as the foundation upon which improvements will be measured.
You provide your employees with Personal Gap Statements that shows what would happen to their weekly paycheck if they were to increase their 401(k) contribution by 1 percent, 2 percent, 3 percent or more. It not only gives them the net tax savings and the net cost to their paycheck, but it also shows them how much money they’ll accumulate at retirement, based on a reasonable rate of return, and converts that amount into a monthly income.
To make this new information easy for your employees to act upon, you decide to implement the five automatic features in Auto 5. These are:
- Automatic Enrollment
- Automatic Quality Default Investment Alternatives (QDIA)
- Automatic Escalation
- Automatic Re-enrollment
- The Stretch Match
You provide group, on-line and one-on-one counseling to your employees to answer any questions they may have about the plan and how to best take advantage of it in their particular situation.
Seeing the Results
As a result of the steps above, you see a measurable improvement in the Retirement Readiness of your employees. More are participating in the plan. They are saving more, are appropriately invested for their age, and are making progress toward their target income replacement ratios.
You sense increased energy and commitment from your employees. They are more engaged in the business because they clearly see their brighter future is directly connected to future success of your company and the 401(k) you have made available to them. Turnover drops, morale improves and profits rise.
Sound too good to be true? It’s not, but it does take action.
It all starts with benchmarking where you are now. Contact us at email@example.com today to request your complimentary Industry Vendor Benchmarking Report. Maybe you will find out your plan is running great. But maybe you will find out it could run much better. Wouldn’t that be good to know, either way?
Robert DeVries is a WealthCoach ™ and Retirment Plan Specialist at FirstWave Financial™. He also holds a CRPS® designation.
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