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Reevaluating Your 401(k) Program to Boost Participation


Your 401(k) program is one of the best benefits you can offer your employees. However, 401(k) participation is weak in many companies across the country. If that's the case in your business, it may be time to reevaluate your retirement program to spur some well-deserved excitement for this valuable benefit and get more people on board.

How participation impacts you and your employees

Successful participation in your 401(k) program is important for both your business and your employees. In some cases, participation may be low enough to make the group plan fail the 401(k) Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) nondiscrimination testing. According to the IRS, a plan is top-heavy when, as of the last day of the prior plan year, the total value of the plan accounts of owners and managers is more than 60 percent of the total value of the plan assets. Top-heavy plans can trigger required contributions from the employer on behalf of non-key employees.

Employees at lower salary levels or those at younger ages may be less likely to participate for several reasons. Regardless of age or income level, reasons can range from a focus on other financial priorities and limited available funds to dedicate toward retirement to intimidation by the process of choosing how to invest their 401(k) plan.

Employees are more engaged with a company that offers a range of benefits. As a result, they are far less likely to leave your business to search for work elsewhere. Matching an employee's 401(k) contributions is a significant incentive for employees to enroll and to stay with a company. Since your matching contributions are tax-deductible, it a significant incentive for you, too.

And providing a 401(k) retirement plan can be a powerful recruiting tool. A retirement plan enables small businesses to compete with bigger companies when trying to attract qualified job candidates. As candidates consider multiple job offers, benefits packages become an important factor.

refine 401(k) plan

Reviewing your current plan

For business owners, there are a few things to consider when reevaluating your 401(k) program according to the AICPA:

  • Review your options to be sure you are maximizing your tax-deductible savings.
  • Review your current plan costs; the plan cost disclosure 408(b)(2) regulation outlines the costs a provider is required to disclose.
  • Consider ways to reward key employees by adding options such as a profit sharing.
  • Review your plan provisions to ensure it allows you to save enough in its current form.
  • Consider offering a Roth 401(k) option, which uses after-tax dollars and allows for tax-free withdrawals during retirement.

Rules around 401(k) plans change annually. Review the cost of living adjustments for the current year in the following key areas:

  • Increases in the basic salary reduction limit for 401(k) plans
  • Increases in the maximum deductible employer contribution for Simplified Employee Pension (SEPs) and profit sharing plans
  • Increases in the annual maximum benefit for pension plans
  • Changes to the maximum amount of taxable compensation for qualified retirement plans

Set time to review your plan with your plan administrator and your financial advisor to discuss adding or changing options that are beneficial to you and your team.

Communicating about 401(k) plans

Employees who are intimidated by the process of setting up their plan can benefit from communication through multiple channels. Consider providing detailed materials in a range of formats such as hard copy, through online interactive methods, video, and even face-to-face Q&As.

Partner with your plan administrator to develop materials that explore investment options and provide details about how the investments work. Consider having a plan expert on site before or during the annual enrollment period. Having a person to talk to, provide an overview of 401(k) plans and answer questions in person will help drive enrollment. And the enrollment process itself must make it easy for employees to enroll. Providing seamless online access will minimize challenges, provide flexibility and centralize information about plan options.

After employees are enrolled, providing regular updates on their investments is an excellent way to keep the interest level up in your program. As their understanding of retirement plans grows, their interest and participation can increase as well.

Considering the importance and complexity of employee benefits, ample communication is key. Make use of your benefits administration platform to produce valuable information to your employees. Employee benefit success stories and tips on getting the most from the plan can have a positive impact on participation.

Consider taking advantage of your plan administrator to provide regular plan sponsor support and communications. Learn more about how Paychex retirement services can help you get the most from your 401(k) program.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.