Are Employers Doing Enough to Promote Retirement Plans?

July 3, 2007

Does your employer encourage you to participate in a retirement plan?  It took my wife’s employer 6 years to actively promote their retirement plan.

A Tale of Two Retirement Plans
Today’s young workers won’t be able to rely on company pensions or Social Security when they’re old and gray so starting to invest right away in a retirement plan is vitally important.  Unfortunately not all employers are doing their part to get this point across.

The human resources department at my company does a good job informing employees of the features and importance of our 401k plan via email, postal mail, and seminars.  My wife’s employer on the other hand has done a horrible job. 

After working for a local school district for 6 years, my wife just received her first promotional item, touting the benefits of the 403b plan available to her.  They do mention it during district meetings at the beginning of every school year but until now that’s all the coverage the plan received.

Promoting Retirement Plans
The letter she received today shows her contributions for the last year and contains a hypothetical scenario of how much she could save for retirement with the 403b.  It also answers generic questions such as:

– When a person can begin participating in the plan.

– How much someone can contribute.

– The available investment options.

– Where to call for more information.

I’m glad her school district finally decided to get the word out about the 403b plan and encourage teachers to participate, I just don’t think its right they waited 6 years to do it.

Employer Effectiveness
I’ve attended several seminars on our 401k options over the 7 years I’ve worked for my company.  Everyone knows what a 401k plan is and most people are contributing.

In contrast my wife has discovered through numerous conversations that many of her co-workers don’t know what a 403b plan is and only a few of them are participating in it.

To be fair, her plan doesn’t offer an employer match while mine does.  In addition, corporate jobs in my industry tend to pay better than school teachers so her co-workers may not have as much money to work with.  However, I imagine that if you compared two corporations, one that promoted its 401k plan and another that did not you would find a higher participation rate in the company that encourages its employees to save for retirement.

With the days of pensions in the past and shrinking employer health benefits on the way it seems irresponsible for employers not to promote their retirement plans to their workers.  How does your human resources department rate?  Do they do a good job getting the word out or are they retirement plan slackers?

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8 Responses to Are Employers Doing Enough to Promote Retirement Plans?

  • Ben

    Jeremey, I agree, I think the automatic is a good thing even if it causes some inconvienence for a few.

    broknowrchlatr, 100% vesting after a year sounds pretty good, its better than my company offers. They have a gradual vesting schedule, something like 20% after 1 year, 40% after 2, 60% after 3, and 100% after 4. A 4% match isn’t bad either, my employer only matches 3%.

  • broknowrchlatr

    My company barely seems to promote it at all, even though it is a great program. 4% company match that is deposited at the end of the year but is immediately fully vested. There are about 20 fund options with reasonable expense ratios, including all the T. Rowe Price Lifecycle funds. There are also no trading fees.

    From the folks i have talked to, the older employees are near 100% participating. The under 35 crowd, though, is probably about 25% participation. As a result, the HCEs got a refund for being over contributed last year.

  • Jeremy

    Well, unless there was some sort of financial kickback to the employer from the plan provider I don’t know if the employer would ever have an incentive to actively promote the plan. Obviously some employers realize the benefit this can be for their employees so they actively promote it, but most simply pick a provider and that is about as far as it goes.

    I would like to see more automatic enrollment plans put into place but that has been a fairly slow transition. I think part of the problem is the additional work that would be put on HR if they began to do this.

    As you said, people don’t always pay attention and once they see money coming out of their paycheck that they didn’t want to see go out, they will be upset and place a call. Who will they call? HR. Even though HR really aren’t really the correct people to field the call, since they would ultimately have to refer them to someone like myself to ultimately help them.

    So, again it comes down to an issue where I think many employers also don’t want to deal with the added hassle. They have enough things to worry about so an optional retirement plan is the least of their worries.

    One good thing to mention though since you brought up unhappy employees with automatic enrollment is that there is a refund policy that comes with this automatic enrollment. I don’t have the details on me, but for those people who (within a certain amount of time) decide they don’t want to be enrolled if they were initially by the automatic enrollment provision can request the deferrals stop and get their money back without penalty.

    Again, an added hassle, but I think the reasoning behind this is that most employees won’t even notice the small amount of money coming out of their check and going into retirement, so it is a better course of action to get as many participants as possible and deal with the few that will actually be upset and want their money back.

    Ultimately it is a small price to pay if you could increase participation by 20% and have 1% of those actually want out after it starts.

  • Ben

    Thanks for the info Jeremy! Sounds like the people you work with are lucky to have your services.

    I guess some employers that offer a mtach may not want high participation rates because that’s more money they have to pay out. I wonder what kind of incentives could be put in place to motivate companies to promote their 401k plan more heavily.

    I know I’ve read about legislation that would allow companies to automatically enroll employees into a 401k plan into a default investment. Although it might upset a few people that don’t want to invest it seems it would certainly benefit the majority of people.

  • Jeremy

    This is a great topic, partly because this is exactly what I do for a living. I work for a retirement plan provider and then I am assigned to a particular employer that uses our plan. My office is right in the HR department and it is my job to be available to help participants with questions, hold seminars, get new enrollments, etc.

    The problem with many employer plans is that the HR department is not qualified to give advice about the plan, nor are they allowed to. They can provide basic information about how the plan works, what the match is, etc but when it comes to fund choices, tax issues and all of that they really can’t help.

    For example, let’s say company ABC, Inc. provides their 401k plan with Fidelity. Ideally, there would be a Fidelity representative on-site to service the employees. This isn’t always possible given cost, number of employees, etc. So, ABC Inc. relies Fidelity to send out mailings, make occasional site visits and otherwise inform their employees about the plan.

    Unfortunately, a big retirement plan provider that isn’t in contact with the employees daily won’t have much connection to them other than providing an 800 number, a website and the occasional mail or email. Also, HR has no incentive to promote the plan. They don’t want to deal with it because 1, they generally aren’t allowed to provide advice, and 2, it doesn’t matter to them if 50% of employees are enrolled or 90% so it is just one less thing to worry about.

    I’m in a fortunate position where I’m actually working side-by-side with the employees everyday and I have a vested interest in increasing participation. Firstly, I’m licensed and can help employees on the spot with explaining different investments, help them place trades or make changes, etc. which eliminates the need for someone to just call an 800 number or fumble through it on their own online. Second, while I am paid a salary I also have incentives for participation rates. So, based on various goals and increases throughout the year I can receive generous incentives so it is in my interest to try and have as many employees enrolled as possible.

    Some of the things I do throughout the year for employees are:

    1. All new employees go through a group orientation. At this orientation I give a brief seminar on the plan, how it works, the importance of contributing and then open it up for enrollments.

    2. We have a series of continuing education seminars I give that educate people on more advanced retirement planning topics at various times a year.

    3. We attend the benefits and wellness fairs held twice during the year and try to get new enrollments and get the word out by doing fun giveaways or contests.

    4. Quarterly mailings go out to employees to discuss things that can trigger people to enroll.

    While we’re on this topic, for those of you who feel they are not getting enough information about the plan, what type of things would you like to see done? I’m always looking for new ways to reach out so if you have things you’d like to see let me know.

  • Baz L

    I really hate my company with respect to retirement funds. They do offer a 401(k), but they give a mere 1/2 match.

    Baz L
    Day In The Life of Baz

  • plonkee

    My company doesn’t strongly promote our DC pension plan (essentially like a 401(K)) but since you are automatically enrolled by default I guess most people are in on it.

    If I was in charge I would do more to explain what the different fund choices and so on are in the plan.

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