Six Steps to Improving Your Employees’ 401(k) Plan Results

By Rob Peters

In a 2013 survey of U.S. workers by Principal Financial Services, a defined contribution retirement plan such as a 401(k) was the second most important employee benefit, behind only health insurance. Survey participants ranked the importance of various employee benefits on a scale of one to 10, with 10 being very important. Two thirds of the employees ranked defined contribution retirement plans as 8, 9, or 10.

However, knowing the importance of a retirement savings plan doesn’t mean employees will manage them well and get the results they’ll need.

If your credit union has already taken the crucial step of having a retirement plan in place, consider these additional steps to help employees make good decisions about their plans:

  1. Initiate automatic enrollment.  A 2013 survey report by WorldatWork and the American Benefits Institute shows the difference it can make when employees must opt out of a 401(k) plan rather than opt in.  Of the companies surveyed, 37 percent of those with auto enrollment had 80-89 percent of employees enrolled, compared with 21 percent for companies without auto enrollment. It’s similar for the companies with 90 percent or greater participation: 36 percent had auto enrollment, and 19 percent didn’t.
  2. Set a higher automatic enrollment contribution rate. Enrolling employees at a 3-percent contribution rate may underfund their retirement needs. Try enrolling them at 6 percent minimum and chances are you’ll see little difference in take rates.
  3. Offer automatic increases. Give employees the option to have their contributions automatically increased by, say, 1 percent per year until they reach 10 percent. The gradual increase is painless.
  4. Include target date funds (TDFs) or managed accounts. These options give your employees easy access to long-term professional management of their investment. This is especially helpful to employees who feel under-educated or overwhelmed about choosing investments.
  5. Use TDFs or managed accounts as your plan’s Qualified Default Investment Alternative (QDIA).  When participants don’t elect a fund for their contributions, the plan’s fiduciaries must have a prudent default investment in place. JP Morgan analyzed a sample of 401(k) plan participants’ returns for 2010 through 2012 and found that TDFs and managed accounts yielded far less volatile returns and higher average returns than do-it-yourself investors. This demonstrates  the value of professional management and funds with increasingly conservative risk/return profiles.
  6. Stretch your match. In the WorldatWork/American Benefits Institute survey mentioned above, 66 percent of the companies reported that more than half of their employees contributed at least the employer matching contribution. Set your matching percentage higher and encourage more employees to take advantage. And you can do it without increasing your cost. For example, rather than a dollar-for-dollar match up to 3 percent, match 50 cents for every dollar up to 6 percent.

Whichever steps you take to improve your employees’ participation, work with your plan provider to communicate the plan’s features to employees clearly and often.

Rob Peters is the senior manager of marketing for CUNA Mutual Group’s Asset Management Marketing department. Reach him at Rob.Peters@cunamutual.com.

Strategic Link is the NWCUA’s wholly-owned service corporation, using the power of aggregation to provide the Association’s member credit unions with exclusive high-quality, competitively-priced products and discounted services. Contact Director of Strategic Partnerships Craig Reed today to find out how Strategic Link can help your credit union save money while meeting its goals in 2014 and beyond: creed@nwcua.org.

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