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Tips for 401k Plan Sponsors on How to Help Participants

The three most common ways employees categorize themselves as investors are: Making Progress, Being Financially Confident, and Getting Started. To meet the needs of these investor types:

Consider helping 401k participants put their plans on auto-pilot

Many participants don't want to actively manage their plans on an ongoing basis. However, they do want to feel confident that their plans are well tended. Plan sponsors can create a streamlined, automated solution for participants by:

  • Allowing employees to opt into the plan with a "starter" contribution rate;
  • Helping employees select an appropriate premixed portfolio for their circumstances; and
  • Providing the option for employees to elect to have their contribution rates increased automatically over time.

The starter contribution rate gets people into the plan quickly and easily. The premixed portfolio allows participants to delegate the responsibility of determining an optimal portfolio and rebalancing the portfolio on an ongoing basis. The contribution escalation feature allows participants who want to save more -- but who aren't quite ready to commit -- to reach their target contribution goals over time.

Make it easy to do the right thing

Features such as contribution escalation can also help participants overcome concerns about taking a large hit to their paychecks all at once. By electing contribution escalation, participants' payroll deductions increase by small increments, avoiding a single large decrease in take-home pay. Likewise, plan sponsors can provide automatic rebalancing as another way to allow participants to keep their plans on track without constant intervention. By electing autorebalancing, participants' portfolios are rebalanced regularly -- without the need for participants to take the initiative to rebalance each quarter.

Support employees step-by-step in their decision making

401k participants want to know they are making the right decisions. Plan sponsors should consider providing decision support tools at each point of need. Likewise, proactive, personalized communications that remind people to participate early, increase their savings, and to diversify and rebalance can also help keep employees on track -- and increase their confidence that they are addressing the right areas in managing their plans.

Help employees to get real

Employees need to know whether they are on track for retirement or not. Plan sponsors can provide this support through retirement forecasting software that is quick and easy to use. Also, plan sponsors can use existing communication channels to reinforce the notion that retirement savings is a shared responsibility -- and that it's up to the employee to do his or her part by taking advantage of the 401k plan.

This article was provided by Hewitt Associates, a global human resources outsourcing and consulting firm.

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