When you want to encourage your best employees to stay with your company or attract top candidates, your retirement plan can be a key tool to building lasting employee relationships.
Developing a competitive retirement plan that meets your employees’ needs while also going above and beyond to provide added value is an important measure employers should take.
A great way to boost your 401(k) plan is by pairing the plan with individualized financial planning. Bring in an advisor to help your employees set goals and map out their financial futures.
Offering Individual Financial Planning
In terms of their retirement plan, many companies broadly classify employees as new, working or retired. This ignores the fact that participant needs are different for each stage in life, and that a 25-year-old worker may not participate in the 401(k) plan for very different reasons than someone who is 35, 45 or 55.
Strong cash flow management skills are important at every age, as people try to balance their current needs and prepare for their financial future. To navigate different life stages, every person needs to know what their financial need will be and the steps they must take now in order to meet that goal. If your company doesn’t provide guidance about balancing these needs, employees won’t put away enough money for retirement.
Sharing articles and resources is no substitute for individualized investment or financial planning. That’s why it’s important to choose a plan advisor that helps each participant resolve their questions and financial issues, and make sure they stay on track by reviewing their progress each year.
One of the most important aspects of this financial advice is to work through the calculations to show each employee the details of how contributing to the 401(k) plan affects their financial picture upon retirement. These figures should include:
Here’s an example: Let’s say you have an employee named Susan, who earns $1,350 paid biweekly. Your plan’s financial advisor could then use a simple calculation to show Susan the difference between not participating in the plan and contributing 8 percent to the 401(k) plan.
Source: "Road Map Toward Retirement: Tracking Your Plan For Retirement." Principal Financial Group, 2013.
As this chart shows, Susan could contribute $108 while reducing her biweekly take-home pay by only $81. Over the course of a year, she would save $702 in taxes, and contribute $2,808 to her retirement fund. Next, the plan advisor should show Susan how that contribution is likely to grow over time. Here’s how Susan’s 8 percent contribution would grow over time, assuming a 7 percent rate of return and 3.5 percent annual income growth:
Next, the advisor should show Susan the impact of the company’s matching contribution, and the resulting growth over time. From there, the advisor may want to explore different scenarios, such as the impact of a higher or lower rate of return, or increasing or decreasing contributions by 1 or 2 percent.
When you invest the time and resources into individualized financial planning for your employees, they’ll likely be more engaged and eager to contribute to their retirement plans. Plus, your organization is demonstrating a commitment to your employees and their financial futures, which often helps to boost employee loyalty.
Individual financial planning isn’t the only way to strengthen your organization’s 401(k) plan. Explore more tactics for developing a competitive retirement plan by reading our free e-book, Make Retirement Benefits Your Secret Weapon For Employee Retention.
