Employers Are Sweetening 401(k) Incentives


Access to retirement plans is a key differentiator in the marketplace for top employee talent. If you are counting on your company 401(k) plan to be an asset in helping retain the best talent and to compete against other employers for the services of the workers that are critical to helping your company function, it may be time to take a look at your plan and ensure it's still competitive with those offered by competing employers.

According to a recent survey produced by Ascensus, a prominent provider of retirement plans and college savings plans, employers have been gradually expanding incentives to encourage workers to contribute to 401(k) plans. The percentage of employers who say they are matching a portion of workers contributions to their retirement plans is increasing, as are match levels. Employers are also relying on technology to support plan administration, reduce costs and liability and encourage plan participation.

A majority of 401(k) plan sponsors are now offering employees a matching contribution on employers' 401(k) contributions. 55 percent of employers who sponsor 401(k) plans match employee contributions, according to Ascensus. That's up from 52 percent in 2013. Ascensus believes that this signals "an improved confidence in the economy, as more companies can invest in their employees' retirement."

Online Enrollment and Administration

The days of paper signups are over for the vast majority of workers.85 percent of new plan participants are now signing up online. Workers are also increasingly using online tools, such as retirement plan calculators, to determine whether they are on track for a successful retirement.

Interestingly, 18 percent of investors who went online to use the Ascensus retirement calendar increased their contributions after they used it. 37 percent of those who were not current planned participants who went on line to use the calculator began contributing afterwards.

Employees Don't Want to Pick Their Own Funds

One of the challenges with 401(k) plans is the freedom that plan sponsors have to choose poor or unsuitable investments. Massive underperformance of workers retirement plans compared to more sophisticated managers' plans and broad market indexes threaten to create liability problems for plan sponsors. But employees respond favorably to ideas like 'target date funds' and model portfolios that relieve them from the responsibility of choosing mutual funds and other investment options. Employers are using these funds, rather than money markets, as "qualified default investment alternatives," (QDIA) in many cases.

The percentage of plan sponsors offering such options to plan participants increased substantially in recent years, from 17 percent in 2011 to over 26 percent in 2014.

Mutual fund data clearinghouse Morningstar reports that 80 percent of employees who were automatically enrolled into a managed account QDIAs still stayed in the same managed account after two years.

This approach not only boosts plan enrollment, but it also helps ensure workers' investments, so crucial to their long-term financial well-being, are reasonably well diversified.

The use of prudent qualified default investment alternatives that are not so risky as to expose workers to unreasonable loss, but not so safe as to ensure long-term unsatisfactory returns, also helps protect the plan sponsor from lawsuits from disgruntled employees complaining that the money they left in a money market for the last 15 years generated poor returns.