Do you have a population of employees that are still on the sidelines regarding participating in your retirement plan?
According to a recent study by Aon Hewitt, 76 percent of eligible employees participated in their company’s DC (defined contribution) plan in 2010, which means that almost 1 in 4 employees ARE NOT participating! It just amazes me that even with the popularity of auto enrollment, there are still so many employees not taking advantage of saving for retirement.
What I see happening is that long-time employees who were hired prior to the onset of auto enrollment, and those employees who get frozen out of the plan due to taking a hardship withdrawal, are slow to enroll or re-enroll on their own accord. In 2010, 60 percent of employers reported using automatic enrollment but most of these companies (85 percent) do so only for new hires.
How to catch employees who are slipping through
So how can we catch those slipping through the cracks?
- For starters, they need to be notified that they are not participating. I know – they should already be aware of that, but I hear time and time again from employees who THINK they are contributing when they are actually not.
- If you are already using auto enrollment, expand the program to current employees. To do so, you will need to cast the net at least once a year and review the list of current employees who are not participating. “Back-sweep,” or apply the auto enrollment feature to the list of employees so that you are including everyone in the plan who is eligible.
- Of course, the employees should also be notified they can opt out of the auto enrollment. You can take this opt out clause one step further and offer financial counseling for those that do opt out. Perhaps it is a simple matter of creating a budget, or overcoming the fear of investing that is the obstacle, and by speaking to a financial planner there can be a potential solution.
So, by combining auto enrollment, back-sweeping and financial counseling, perhaps we CAN get those 1 in 4 employees more actively involved in saving for their own retirement.
This was originally published on the Financial Finesse blog for Workplace Financial Planning and Education.