Offering a retirement plan is a major benefit businesses can offer to their employees; yet I often come across clients who have lower-wage employees who do not participate. Most business owners assume their lower-wage employees don’t elect to participate in a 401(k) plan simply because they cannot afford to, but in reality the the lack of participation is due to poor plan education.

Think about an employee who is making minimum wage–they likely monitor how every dollar they earn is spent and are always looking for smarter ways to spend and save their money. 401(k) plans can help these lower-wage employees save money, but without the right introduction and education, they may never fully understand how a 401(k) plan can work for them.

  • Do your employees know their 401(k) plan pre-tax contributions help them save for retirement by saving money now that is not eligible to be taxed? 
  • Do your lower-wage employees understand the money in their 401(k) plan will grow over time because of investment returns? 

Employee education is important for 401(k) plan participation

When a trustee runs into a participation issue, I remind them to not assume their employees don’t want to contribute because I have yet to run into a group of participants that aren’t interested in saving money.

Three ways to improve 401(k) plan participation

Proper education is the easiest way to improve plan participation amongst lower-wage employees. Here are 3 ways to ensure your employees are receiving the best retirement plan education:

  1. Work with in-house staff or an outside company to communicate the 401(k) message to employees efficiently and effectively.
  2. Make plan education mandatory, not voluntary. Present examples to your employees that are appropriate for the group. This will help them understand how the 401(k) plan really benefits them.
  3. If you already have an education program in place and are still experiencing low plan participation, sit in on a plan meeting to get a grasp on how the material is being presented. Are the terms and examples used appropriate for the group of employees being presented to?

Peace of mind for all employees

It’s not often that I come across a group of employees that do not want to save for their retirement, regardless of the amount of money they earn. We all understand the peace of mind that comes with having some money stowed away for an emergency no matter how much money you make, and even more peace of mind can be had with a plan for retirement.

Ruben Hernandez