A recent Fidelity Investments survey found more than 40 percent of workers value matching 401(k) funds so strongly that they would prefer a higher match over higher pay. In addition, it found only 13 percent of workers would consider a job that had no matching funds.
There are many advantages to offering a 401(k) as part of your company’s employee benefits and a strong match is an important component in a total benefits package. Companies that offer a strong match are able to recruit and retain qualified employees. Additionally, a 401(k) with a strong match inspires loyalty and longevity among employees.
That, in turn, can potentially lower future costs associated with an aging workforce, says Jonathan Leidy, a principal with Portico Wealth Advisors. When people feel more confident about their retirement options, they may take advantage of those options sooner rather than later.
Communication is Essential
If you offer a match, be sure to highlight that in your company’s benefits communications. Explain that with a 401(k) employees are able to save their own contributions on a pre-tax basis, and getting an employer contribution on top of that is a definite plus.
Ensuring your employees know about the match can boost your company’s image. While it may simply be a perception that a company that offers a match cares more, “it is a strong one,” says Paul Robertson, financial advisor at the Financial Design Group. “People are much more likely to brag about the strength of their benefits package than they are about the amount of pay they receive, even if the total dollar amounts are identical. A 401(k) is a commitment for the future, and as such it says I am interested in helping you plan and fund for your future.”
Going above and beyond to ensure your employees fully understand the 401(k) as a retirement option is even better. “Many employees have a very inadequate understanding of their 401(k) options or how to manage money,” says Dennis Breier, president of Fairwater Wealth. “Even a strong 401K offered by the employer can be seriously mismanaged by the employee.” Make sure that your employees understand all their benefits to get the most out of them.
How Much Should You Match?
The rate at which your organization matches 401(k) contributions will vary by industry, size and other factors. We typically see matches ranging from 4 percent to 10 percent of an employee’s salary. The average employee needs to save 10 percent to 15 percent annually for retirement. The more a company can contribute to that savings, the better off the employee will be in the long term.
As you prepare benefits packages for your employees, keep in mind the employer match, and include information about it when you recruit new talent. You’ll find it can be a powerful tool. “For employees it’s simple,” Leidy says. “A 401(k) match is free money. And most everyone likes that.”
Need help setting up a 401(k) plan for your company or implementing a match? We can help even very small businesses provide their employees with retirement savings options. Please contact us for more information.
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