Communicate to Avoid These Top Three 401(k) Mistakes

According to the Bureau of Labor Statistics, 80% of full-time employees participated in one or more employer-sponsored retirement plans in 1997. This statistic alone is proof that 401(k) plans are more the norm than the exception.* So if most companies are offering a 401(k) plan what’s the key to making your plan better?

The key is to communicate and educate in order to help your employees avoid these top 3 mistakes in their 401(k) plan:

1. Missing out on the employer match
2. Picking the wrong funds
3. Never rebalancing

When most employers evaluate 401(k) plans they focus on fund options, investment performance, and fees. While these are important be sure not to overlook employee training and education. This is crucial in helping to train and provide support for your employees.

Communication and education are the keys to a successful 401(k) plan. The number three mistake employees make in their 401(k) plan is failing to rebalance or adjust their portfolio. Over a period of time a portfolio can become out of balance. About 75% of employees indicated they spend less than 10 hours per year reviewing returns and studying their options according to a Mutual of Omaha Companies study on 401(k) plans. Train your employees to rebalance their portfolio. Assist them in establishing a rebalancing guideline. For example, If their portfolio is off by 5% or 7% for two straight quarters it’s time to at least review if not rebalance.

The number two mistake employees make in their 401(k) plan is picking the wrong funds. You should provide various levels of training based on an employee’s investment knowledge. Set up beginner, intermediate, and expert training sessions. It’s important to train your employees and help them to fully understand what fund options are available so they can pick the funds that best fit their long-term goals. Remember, you’re providing training and not advice. You’re giving them information to help make wiser choices.

The number one mistake employees make in their 401(k) plan is missing out on the employer match. If your employees aren’t contributing enough to receive matching funds they’re essentially leaving money on the table. Let’s say for example, an employee makes $40,000 a year. The company matches 50 cents on the dollar up to 5%. This means the employee must contribute 5% or $2,000 and the company will kick in 2.5% or $1,000. Educate your employees on the matching percentage and get them excited about the free money available for their future.

Educate your employees on how to properly design a diversified plan according to their risk tolerance, track the performance of investments, and rebalance their plan periodically.

Without your help your employees "golden years" could turn into "yearning years".

* Taxes are due upon withdrawal from qualified retirement plans and there may be a 10% tax penalty for withdrawal prior to age 59½.

Contact BusinessPlans to discuss how we can help you to communicate with your employees.