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Strategies to Discourage Employees From Opting Out of a Plan

Question: We are going to start automatic enrollment in our retirement plan at 1% for all eligible employees. We want to discourage our employees from opting out of the plan. What are some strategies we can use to keep them enrolled?

Answer: One of the best ways to keep your employees enrolled in the plan is to help them understand the benefits of saving for retirement, and to show them that their paycheck will not be affected as much as they probably think. Here are some ideas on how to do this:

    
Show them the benefits of making a pretax contribution. We recently worked with a client who did a calculation for all of their employees to show them what a 1% retirement plan contribution meant to their paycheck and showed what the actual difference was in their take-home pay. Most employees were surprised to see that the affect on their paycheck was very small and seemed easily affordable at the 1% level.

Show how that minimum contribution grows over time. In our experience, employees really do not understand or appreciate the growth of their contributions with compound interest over time. You can have a significant impact if you show them how much total money they would be leaving on the table if they opted out. For the client we worked with, the 1% contribution meant an additional $100,000 at retirement for an employee earning the average salary. This was enough to convince most employees not to opt out.

Reinforce the message with financial education that compliments the above points. This can be provided by a financial helpline staffed by unbiased financial planners who counsel your employees. You can recommend that all employees call the helpline before deciding to opt out so that they can understand what they are giving up in terms of future retirement income. The financial planners on the helpline should be able to calculate how much money that employee would be giving up by opting out, and should also be able to counsel the employee on how much they need to be saving in order to reach their retirement goal.

In addition to providing a helpline service to your employees, you might want to consider additional online tools and resources for employees to use on their own to do some of the calculations mentioned above. It is also a good idea to provide general information on retirement planning through articles and other written materials to give your employees an overview of the topic, as well as more detailed information on areas that are of interest to them like retirement investing strategies, IRAs and other retirement savings vehicles, and tax issues related to retirement accounts.

About Financial Finesse: Financial Finesse is a full-service unbiased financial education company that works with Plan Sponsors and Plan Advisors to design company and plan-specific financial education programs that address the gamut of plan participant and business needs. Our award winning financial content is delivered in multiple formats: live, online, telephone, and through financial planning kits. If you are interested in learning more about workplace financial education programs, contact one of our education consultants at AskFF@financialfinesse.com.

The Ask Financial Finesse Q&A service is designed to provide general information on trends and developments in workplace financial education programs and participant education strategies. Due to the complex nature of financial benefits and/or workplace financial issues, the information contained in this document is not to be construed as advice. If you have questions about your specific situation, you, may want to contact a financial education consultant. Due to volume, Financial Finesse will be unable to answer all submitted questions.


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