While there is more than enough 401k advice out there, the most important factors for successful participant outcomes remain:
1) Defer enough (recommended amount nationally is 10%)
2) Invest in the right allocation (mostly equity when you are younger)
3) Keep fees reasonable (No more than 1% year)
1 and 2 are the most important, yet research indicates participants still don’t save enough. Incredibly; many do not even save enough to receive the full employer match! A study by Financial Engines, written about in the NY times blog reveals:
Of the two million 401k participants evaluated, 39 percent were not saving enough to receive their employer’s full matching contribution (or they weren’t saving at least 5 percent of salary in companies with no match), up from 33 percent in 2008. Younger workers are even more likely to give up the free cash: 47 percent of participants under age 40 did not save enough to receive the full match, compared with 53 percent of workers under the age of 30.
As a plan sponsor (employer) the best way to encourage participation is through clear and consistent communication. Keep letting the participants know that the program is competitive and worth making the investment. Perhaps they don’t invest enough because a lack of trust and confidence in the plan itself which may come from a lack of transparency? So be upfront about the fees and expenses while reminding them of the benefits and advantages – especially if there is a match because 39% of participants are leaving free money on the table.