401k Participation

About 75% of our total employee base is comprised of entry level employees. We just completed our Non-Discrimination Testing on our 401k and the results were horrible because of our low participation among the NHCE's. Our plan is very generous in that we match 100% of the first 3% so for this small election our employees can gain the maximum benefit but our enrollments continue to be low. It is very difficult in these lean times to convince employees who live paycheck to paycheck that this investment in their future is worth it. Can any of you give me ideas that you have used in the past to either "get the point across" or make this a "too good to pass up" benefit? I would greatly appreciate any ideas or suggestions.


  • 12 Comments sorted by Votes Date Added
  • We do a "negative election" whereby employees are automatically enrolled into the program, and they need to take action to "opt-out". This passed our legal gurus in MN, don't know about your state. Doing this worked for us - employees living without the extra few dollars in their check is one thing, and for some very real, but we found that most employees simply didn't want to take the time to complete the paperwork (or didn't understand it, or didn't understand investing issues in general, so just didn't do it). Very few employees have gone through the effort to "opt out". (Our employee base sounds similar to yours ... 90% or so low-earning, entry-level jobs.)

    Good luck!
  • I would also explain WHAT kind of investment the 401k money goes into to and the RISKS involved !!!!! In these uncertain times, I actually discourage participation in our company's 401k plan - even with company 3% salary contribution, as the plan available seems limited to stocks/mutual-funds- and these values have been plunging along with the stock market.

  • As shaky as the market is, I think you are doing a horrible disservice to ever discourage someone from participating in 401k. Our role is to inform and educate - let the ee decide. Who are we to actually provide investment advice? There is a difference.

    If you are concerned about your plan's investment options, ask the plan fiduciaries to consider adding some more conservative investment options like money market accts or fixed income funds. They do exist.

    We all need to remember that retirement plans are for the long haul. There will be ups and downs along the way. To opt out during down periods shoots oneself in the foot. Yes, the market is low but that means you are buying shares and units at a lower price too. You can buy a lot more now and that will benefit you when the next upturn occurs.

    As far as the original post goes, I'd keep pushing for more education. We hold meetings, we push our 401k provider to provide materials, etc. We have found participation goes up when you have more education and discussion about the plans. Having said that, we failed our ADP test too...so it is a never ending issue to keep pushing the benefit drum here.

  • Lori-
    I did ask the 401k Plan Administrator, requesting info . The Plan sent me a three page listing of how all the various investments performed ~ all negative,
    BIG negatives. My boss, the owner of this company, has lost more in his 401k
    than most people even dream of making. And after all that, the Plan Administrator even crowed about about how good the investments were!

    It would be better if our employees put there money into an IRA at a bank,
    at least it is insured by the FDIC against loss. And that is how I advise

  • Hi Chari

    For whatever it is worth, may I suggest following:

    1. Go directly to trustee with concerns about lack of adequate array of investments. Trustee is the one who is ultimately responsible for ensuring adequate mix of investment risk.

    2. Educate yourself as much as you can about investing for long haul. Looking for short term growth misses the point of investing for retirement.

    3. Never advise ees to open IRAs. That is the job of an accountant or other tax preparer. Many ees with access to employer provided retirement plans simply aren't eligible for IRAs. I'd merely suggest they consult with their tax preparer about whether an IRA would benefit them....

    Good luck and don't lose faith in the market. It really requires a long sighted vision to make it work.

  • If the owner of the company lost that much money, maybe you should talk to him as well as the trustee about looking into some other investment options. At a company I once worked for, they actually put together a "team" of individuals to look at different fund options to allow employees more of a choice. They spent several months looking over the information and made decisions to get rid of some and added several others. I would also suggest educsation as a means of boosting participation - I'm not talking about simply handing the employees paperwork but having someone from the financial institution come to your facility and have a presentation ready for the employees to educate them on what the purpose of the 401(k) is and what your plan offers. I have done this several times and after each time employees who previously opted out have elected to participate and others have increased their percentages.

    Regarding advising against participation, my suggestion is to NEVER do that. This kind of advice can truly come back to haunt you!! This is a decision for the employee to make and my advice to an employee is to talk to a financial planner and have them (the planner) advise what is best for the employee. You, as the HR person do NOT know what each person's financial status is nor are you adequately trained to offer financial advice. You are there to do the administration only!!
  • Chari,

    I must agree with Lori. Giving up on the market is horrible thinking. Your CEO didn't "loose" anything unless he sells it. Right now it is still there but trading at a lower price, the flip side is he is also BUYING at a lower price thus getting more for his money. When the market turns he/she will have more shares and make MORE money. We had our rep come in and he made a great statement. He said when a department store offers a 50% off sale EVERYONE goes nuts and buys, but when the stock market offers one everyone sells and stays away. If we give up on the market then in essence our money is no good anyway. In the original message of getting 100% return on your money (up to 3%) there is NO WHERE that your going to get that. Your telling your ee's to not except FREE MONEY!!!! How can you tell someone to not take FREE MONEY? They are getting a 100% return. They won't come close to that in an IRA or anything else. Plus 401(k)'s are taken out before taxes. Not to mention when you continue to buy shares at a paycheck rate you are buying shares at different amounts. For instance lets say you put in $10/week. One week the price per share is $1(you get 10 shares) the next week the price is $5(you get 2 shares) the next week the price is 10$(you get 1 share). Now you have 13 shares and paid $30. Your overall cost/share is $2.31. My point being if you didn't buy while the price was low you would loose out on a lot of shares for when the stock (ie. market) went back up making your breakeven cost lower. (Not counting the money the company GAVE you which only lowers your break even cost more)

    To make a long reply short. Believe in the market. Let time do its thing. There will always be "resessions" because economics says it must happen, but the market has always come back. I agree with getting more options in your 401(k) for employees but also getting the education out is crucial to uping enrollment.

    Good Luck!!
  • Thanks to all for your replies. Actually, the CEO ( he is 70+ years old )did lose because he pulled out. I know other workers who are near retirement age, and have lost quite a bit in their 401k's ...and it seems heartless to just watch them keep their money where it is and continue to put more in, and wait and wait. These people don't have the time to wait for a market rebound.

    Certainly, the 3% contributed by the company may be considered Free Money, but the value of that, too, is plunging. And how long will it take for the market
    to recover to where it was ? These people don't have time to wait.

  • Cheri,

    This is why you should have your plan sponser give a good education to your employees. As they near retirement they should be transfering their funds into bond funds, money market funds, ie funds that do not pose as much risk as stocks. The reasoning being that they do not have the time left to wait for the market to rebound, but they do not want to take all the money out nor do they not want to gain a return because some people live to be 80+. This is the time where you will take small returns but take a risk of not getting huge gains if the market takes off.

    Just like anything leave the decision on your employees but let them get advise from experts that make a living at this. I bet nobody was telling them not to invest in their 401(k) 5 yrs ago? This is the way the market works. It is not a get rich skeem but was intended to supplement your retirement savings because we can't rely on pensions and social security to be our only source of income when we retire, and we don't want to be working 50+ hrs of stressful work during retirement.
  • Chari --

    The company who sponsors the 401(k) plan has a fiduciary liability to the participants. It is imperative that you do not give any information to the participants that can be construed as advice. A participant who elected not to join the 401(k) plan because you told them not to may, a few years down the road, sue your company for losses. Only investment professionals should be giving investment advice.

    There are many factors that determine how and when a person should be investing in the market and in what types of funds. Lori is right when she says that investing is for the long haul. And your plan administrator may be completely right when they crow over how good the investments are, even when they're posting a loss. The plan administrator is looking at other factors, like how the fund performed compared to the benchmarks.

    If a participant comes to you with investment questions, encourage them to seek outside help from an investment professional. Tell them to start at their local bank or ask friends and family for referrals.


    If your company is willing to pay the 3% of salary for all employees every year, there is a way you can avoid the ADP/ACP test altogether. If the 3% is paid to every single employee and the contribution 100% vested, the ADP/ACP test can be deemed to be passed. Talk to your document provider or plan administrator to discuss this option.
  • Our 401k investment advisor is very pro-active (which is what we were looking for and why we switched from our prior one). She comes on site when associates are eligible and meets with them. She is also available to meet one on one with any of our associates when she is here (about once a month).

    In addition, she also responds quickly to e-mail questions and calls that are directed her way. She also cc's us on responses to make sure that we are in the loop as well.

    In the education process, she uses examples that people can relate to - such as can of soda a day, etc.
  • E Wart
    I agree with a lot of the responses. First, it sounds to me as if you may need to examine your Plan. We changed about two and a half years ago and new one is certainly meeting our needs. Also, sounds as if you need to get word to the Administrator and Trustees that they (to protect themselves as well) need to look at the investment options and possibly add some more concervative one, such as money market and possibly a bond fund.
    This is one benefit I truly believe in and do everything I can (within my limits) to encourage our employees to enroll. We have had group meetings with our employees and our 401(k) company. When it is time for an employee to enroll, I send out booklets with general information I have collected over the years. A lot of this is very simple. One thing that I have done that I find very beneficial, is I have a spread sheet that I show if they put in 1%, 2 % etc up to 15%, how much approximately this will be per check and per year and how much company will match. A lot of times employees don't realize it is such a small amount and will try it and the increase it as they go along. I do everything I can, expect offering advice, to get employees in and to stay in and increase deferrals. What broke my heart was when the market went down, employees transferred from stocks to money market. (Some still dont' understand the buy low sell high concept.) However, now maybe they knew something I didn't.
    We have about 95% participation and we are a manufacturing company with at least 95% production workers.
    Good luck and keep pushing to the point of being obnoxious.

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