Your 401k Plan Is a Recruiting Magnet

There are four key questions you need to ask as you explore your options for a 401k plan.

• You'll want to know what the 401k retirement plan will cost you to implement. Considering the percentage of employers who offer some kind of funds match for employee contributions, you'll want to consider matching a percentage of the employee contribution as well. Take a look also at whether you have employees who make substantial salaries and who are likely to contribute to the plan.

• You will want to discover how much time and effort the 401k retirement plan will require from you to set up and manage. Different choices relative to plan choices and administrators will impact these factors.

• You will want to explore the investment options that are available in any 401k retirement plan you consider. Recently, I surveyed 401k retirement plan options that ranged between eight and thirty-some investment choices.

• You want your plan to serve as a recruiting magnet for the best possible employees. Consider carefully how the 401k retirement plan will meet your business purposes and objectives. Consider how your plan will fit with the overall compensation package you offer your employees.

• Think about how you will use and publicize your 401k retirement plan to attract and retain outstanding staff.

Recommendations for Employers With 401k Retirement Plans

• The most important advice I have to offer you comes from Bruce Pfau and Ira Kay who authored The Human Capital Edge. They emphasize that benefits become valuable when employees understand their benefits and the value of their benefits.

  According to Pfau and Kay, "The companies that get the biggest return on their investment in these programs are those that also commit resources to making sure employees understand those benefits and their linkage to a company's desired culture. Shareholder value and employee commitment are markedly higher at companies whose workers know how much their package is worth and what their benefits mean to them personally." (page 153)

• The same study found that targeted communications and specific advice about the company's 401k plan is just as likely to convince employees to save for retirement as is a high employer contribution match. "A recent study examined 401k plans at 15 U.S. firms, ranging in size from 700 to 10,000 employees. Employees who received targeted 401k communications saved two percentage points more of their pay than those who did not. Raising match rates from 25 to 100 percent achieved exactly the same effect -- but at considerably higher cost to the employer." (page 154)

• Human Resources professionals need to know everything possible about the organization's 401k retirement plan and other benefits. Employees need frequent communication about the design and value of their benefits package. They need information about:
  • why your organization offers the particular set of benefits that it does;
  • what the benefits cost the employer; and
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  • the corporate culture and strategy that your particular benefits package supports.

  Education and communication about the 401k retirement plan and other benefits is ongoing and frequent in companies that use their benefits to their competitive advantage in attracting and retaining staff.

• Keep your company in the forefront in your industry by staying in touch with the benefits your competitors are offering. 401ks and other retirement plans were once unusual; they are now expected.

• Especially if your 401k retirement plan allows individual employees to select their investment choices, you need to make available ongoing information about investing, in general. Classes, online courses, speakers at brown bag lunches, and written material and booklets can educate your employees about saving, compound interest, the stock market, bonds, and mutual funds.

  Show your staff what their retirement benefits will look like if they begin to save earlier in their careers. Provide the information necessary to make your employees knowledgeable consumers. Note that I am not suggesting that the employer offer investment advice, just information that will help your employees make decisions about their own investments in conjunction with their own financial advisors.

• Schedule quarterly meetings and appointments with the 401k retirement plan advisors to encourage staff to take a look at their 401k retirement plans.

  Continue to educate your employees about risk, investing, and how to pay attention to their retirement savings. In the long run, they'll remember working for you with pleasure. They'll thank their lucky stars that they had good investing information. They'll know their employer's 401k plan laid the cornerstone for their future economic success and happiness. They'll remember.

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