Human Resources News & Insights

401(k) plans: Small changes make a big difference for staff

When it comes to 401(k) plans, most experts agree that workers should be contributing at least 10% of their paychecks to the plan.

But according to just about all of the research that’s out there, most workers fall well short of that mark.

The good news is that a few minor changes to your 401(k) plan’s design can really bolster workers’ savings.

A closer look at default rates

There’s no doubt auto-enrollment is an effective way to get people enrolled in a 401(k) plan.

But once workers are signed up, many tend to stick to the default rate the plan enrolls them at, which is usually just 3%.

And because the default rate is something that was ultimately set by the employer, many workers are under a false impression that this is a sufficient amount to contribute.

Since it’s already been determined that many workers will stick to the default rate, it makes sense to consider bumping up that percentage.

Dallas Salisbury, the CEO of Employee Benefit Retirement Institute (EBRI), suggests a 6% default rate is a good place to start when auto-enrolling workers in a 401(k).

Getting creative with the match

The company match is another area where slight tweaks can really help to maximize workers’ retirement savings.

The most common 401(k) match companies offer: 50% on the dollar up to 6% of an employer’s contribution.

But there are plenty of other ways to structure the match to drive greater participation. Here’s just one example:

  • match employees 100% on the first 1% of their contributions
  • match 50% on the dollar for the next 5% of deferrals, and
  • offer a 4% non-elective employer contribution to set up a base, or “floor,” for workers.

Adapted from “401(k) Match Thresholds and Default Rates Affect Savings” by Stephen Miller (registration required)

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