4 Ways to Help Employees Prioritize Financial Wellness

Employees are surrounded by financial stress. From the lingering effects of macro events like the Great Recession, COVID-19, and inflation, to personal challenges related to family or health, many are worried that they’re falling behind and can’t catch up. In fact, more than half say that they’re more stressed about their finances now than they were before the pandemic began.¹

Your company’s retirement plan can be an essential tool for a worker who’s stressed out about their finances and struggling to save. But it takes proactive planning and administration on your part. These four tips can help you help them get on track.

1. Add Auto-Enrollment Feature

One of the easiest ways for an employer to help employees increase their 401(k) savings is to add an automatic enrollment feature. The idea behind auto-enrollment is simple: Instead of making employees choose to participate in the plan, any eligible employee will automatically be enrolled unless they explicitly choose not to sign up. Auto-enrollment typically works by setting a default rate for all employees—say 4%.

Auto-enrollment can have a big impact on participation, potentially increasing the number of employees who participate in your 401(k) by 80%.² And more participants mean more workers will have a significant nest egg when it’s time to retire.

For more enrollment tips, check out our blog post, “5 Tips for a Successful 401(k) Enrollment.”

2. Add Auto-Escalation Feature

Auto-enrollment is a great way to get more employees to start saving, but what about employees who simply aren’t saving enough? It’s not uncommon for employees to start saving in a plan at a rate of 3% or 4% and never re-visit their contribution rate later. But contribution rates should increase over time. Workers in the middle of their careers should be saving about 10%, and those near retirement should consider saving 15%.

Automatic escalation features work by increasing employees’ contribution rates annually (by a small amount, say 1%), usually up to a certain point (say 15%). Employees who use auto-escalation could potentially end their careers with twice as much in savings as an employee with the same salary and return on investments who did not increase their contribution rates.³

3. Consider a Stretch Match for Employer Contributions

Want to help encourage employees to save a little more? A 401(k) match, usually up to a certain percentage of salary, can provide a big boost.

What’s tricky is that some employees who can save more mistake the employer match (maybe it’s 4%) as a recommended limit. One way to address this challenge is by offering what’s called a “stretch” match. In a stretch match, the employer matches a smaller percentage of employee contributions, but up to a higher contribution limit. For example, instead of offering a 100% match on the first 4% of an employer’s salary, you might offer a 50% match on the first 8%. This doesn’t require any additional dollars from you but can raise a worker’s savings rate from 8% of their salary to 12%.

4. Offer Financial Wellness Support

Many employees want to save more for retirement but are overwhelmed by the concept of retirement planning.

Employers have an immediate opportunity to take stock of the educational resources and financial wellness support offered by their 401(k) service providers. Is your adviser speaking your employees’ language? Are your employees receiving the financial wellness education they need to feel confident in their saving decisions? Discuss ways your adviser can increase employee support, like one-on-one meetings to help employees ask specific questions about their unique situation.

Through your 401(k) plan, you can help your employees think critically about their financial goals and develop a plan for the future. By offering a 401(k) with plenty of educational support and features that make it easy to save, you can empower employees to prioritize saving toward their retirement goals.

Let’s Make a Plan Together

Contact us to schedule a consultation. Our 401(k) specialists would love to talk with you about how to develop a 401(k) specifically tailored to your business and employees.

¹https://www.momentive.ai/en/blog/cnbc-financial-literacy-2023/

²https://crr.bc.edu/auto-enrollment-is-highly-effective-but-often-more-costly/

³https://money.usnews.com/investing/articles/2017-06-23/build-a-better-401k-balance-with-auto-escalation