At the heart of any benefits package is a 401(k) plan. I’m not going to lie – there was a day when I couldn’t have cared less about a 401(k) plan. In fact, when I started my career, the only part of my benefits package I really cared about was how much I would be getting back from my benefits allowance. I chose the least expensive elements and pocketed the rest – it was a good system. But like most people come to realize at some point in their twenties, a 401(k) is vital. It’s a big deal. Like, huge. Catch my drift?
Whether you’re an employer, a job seeker or an employee, it’s nice to know how your 401(k) compares to the rest. As an employer, your 401(k) can be a great employee retention and candidate recruitment tool. In looking at 401(k) plans that really stack up, there are five major characteristics and features that make your 401(k) into a candidate recruitment machine.
1. High Participation Rates. High participation rates are generally thought of as the key to providing a successful retirement plan. The more employees contribute, the more funds there are to invest. According to Bloomberg Businessweek, most companies have an average of 80 percent of employees enrolled in their retirement plans, though the average of companies on BrightScope’s list average 93.5 percent participation.
This average has increased in recent years due to the fact that many companies auto-enroll employees and then give the option to opt-out. While employees may not know the participation rate of their company’s plan, a company that auto-enrolls likely has a pretty high participation rate.
2. Employer Contributions. Employer contributions are important for two reasons: they encourage employee participation and they boost your 401(k)’s growth. Think your employer is pretty generous? The number one plan on BrightScope’s list contributes an average of $23,000 annually per participant! Jealous much?
3. Low Fees. 401(k)s are one of the easiest investments you can make but they can be costly. When employers offer a 401(k) retirement plan, they also take on the responsibility of complying with laws that mutual funds and other investments aren’t subject to, which means they’re paying someone to oversee these administrative tasks. The unfortunate thing is that these often get passed on to employees. The best 401(k) plans offer low fees, usually because the company pays a lot of the costs.
4. Immediate Plan Eligibility. More and more companies are offering immediate plan eligibility to their employees. This means that as soon as an employee is hired, he or she is eligible to enroll is the company’s retirement plan. Eligibility periods can be based on length of service or amount of hours, but can be prohibitive to a great retirement plan for your company.
5. Immediate Vesting. Any contributions an employee makes to his or her 401(k) are theirs to keep, but their employer’s contributions may not be. Depending on the company’s vesting policy, employees may vest immediately, after two years or even after seven years. Since most employees only stay at a company an average of four to five years, and many stay far less than that, it’s pretty clear why this is an important component of a great 401(k) plan.
For the candidates and employees, I’d be interested in hearing from you what matters most when it comes to your 401(k). Is there a feature or benefit that is more stands out from all the rest?