Question: What are the advantages and disadvantages of offering a non-elective contribution (for example, all eligible employees receive 1% regardless of their participation in the plan)? How can this work within a 401k plan?
Answer: Offering your employees a retirement plan that includes non-elective contributions definitely has its pros and cons. Here are some of the major issues on both sides.
Financial Education can play a role in getting employees to understand the need to save for retirement and how to invest their funds wisely, in both contributory and non-contributory plans. If you do have employees who have mentioned tight cash flow as a reason not to join a 401k plan, you may want to consider the benefits of a comprehensive financial education program that can address multiple financial planning issues. Many times, employees first need help with budgeting and paying off debt before they are willing or able to save for retirement.
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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.