The retirement plan of choice for many employers is the 401(k) plan. Although they may vary in form from employer to employer, 401(k) plans in general are a means to provide employees with an effective retirement savings vehicle, while giving employers a benefit program to attract and retain loyal workers. Financial planners realize that employees need to do three things in order to take full advantage of this opportunity: Employees need to take responsibility for their own retirement planning; they need to have a program for meeting personal goals; and they need to take positive action.
Education Is Key
According to recent studies, some 401(k) plan sponsors and their advisers may be falling short in getting the message across to employees. There seems to be some evidence that employees eligible for 401(k) plans are not as well versed as they should be on this important aspect of their finances. The Institute of Management & Administration cites some revealing statistics that ought to give pause to any 401(k) plan sponsor concerned about the effectiveness of the plan from the perspective of both the employer and the employee. According to their study:
Only two-thirds of employees want to manage their own investments in the plan. This is significant. Employee investment-directed 401(k) plans are certainly the overwhelming majority, but this form of plan is apparently not universally appreciated. Concerns about fiduciary responsibility and potential liability may encourage employers to let employees direct their own investments. However, employers may want to consider whether such plans are in the long-term best interests of their employees. In many cases, professional investment management, a more traditional approach to qualified retirement plans, may be better appreciated.
Only about three-quarters of 401(k) plan sponsors offer retirement planning services to their employees. To make the plan more meaningful and useful, the total personal circumstances of the employee should be taken into account (age, family considerations, retirement expectations, etc.). Investment consultants usually offer personal retirement planning services to clients and their employees at no cost.
Fewer than one-half of 401(k) plan sponsors offer individual investment counseling, although 88% of employees would welcome this service. Again, comprehensive investment counseling is available through financial planners, who offer advice on many plans from the relatively simple and quick Asset Analyzer through comprehensive business and estate planning services.
Female employees participate in 401(k) plans in greater numbers and save greater amounts than male employees. The study points to a clear gender gap. Male employees may need more education on the advantages of a 401(k) plan.
401(k) communication efforts are widely perceived by employees as failing. In several categories, 401(k) participants expressed dismay with communications. Consider the statistics from the study:
- 44% agreed that communications were very clear.
- 42% felt communications were of sufficient frequency.
- 40% felt benefits personnel were responsive
- 29% were confident that the plan would meet their retirement needs.
Respondents, in large proportions, expressed need for additional 401(k) plan support:
- 88% wanted more individual retirement planning.
- 87% expressed a need for comprehensive financial planning.
- 85% would like more planning seminars.
- 78% felt the need for better investment advice.
More and Better Information Needed
Undoubtedly, there are many 401(k) plan sponsors who run excellent programs that are well received and utilized by employees. But as a rule, it appears the 401(k) plan community needs to do a better job. Employees are speaking out and expressing a need for better information, presented more often and with greater professionalism. Employers should be strongly self-motivated to improve their efforts. Better employee benefits make for a more content workforce which will be reflected, presumably, in greater productivity, efficiency and profitability. All too often, it appears, 401(k) plans, as well as other types of qualified plans, are simply left on the table for employees to take or leave as they wish. With all the expense and paperwork involved with 401(k) plans, employers should exert maximum efforts in order to obtain the biggest bang for the benefit buck.
SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
