How to Double Enrollment in Small Business 401(k) Plans

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Submitted by Life, Inc. Retirement Services on June 22nd,2018

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Millennials don't save money.

A recent study found that 66% don't participate in their employers' retirement plan. A mere 5% contribute "enough" to their retirement to actually live off of it when the time comes.  

As an employer, it's not your job to get your workers to suddenly care about their future. But in a highly competitive workforce where unemployment has tied a 50-year low (making workers scarce and wage inflation expensive), getting creative with 401(k) plans can make the difference between workforce longevity and competition or low motivation and turnover.

The Pitch for 401(k) Plans

Short, punchy, dire.

To reach a generation that gets its news from Instagram and is reluctant to save for retirement when they're drowning in student loan debt, the truth will suffice:

"Most people won't save enough money to retire, and most people don't believe they're 'most people.' Look around the room. Statistically, every other one of you will have to work well into old age in order to eat and pay rent. Or, you can start saving...a"


The 'Nudge'

In October 2017, University of Chicago professor Richard Thaler won the Nobel Prize for his work in behavioral economics, which inspired the U.S. Congress to make it legal for employers to automatically enroll employees in retirement plans (so long as workers have the choice to opt out). Thaler's theory of "Libertarian Paternalism" is based on the idea that humans are intrinsically lazy, glued to the status quo, and socially engineered for procrastination, and as such are more likely to opt out of retirement planning (or organ donation, specified tip amounts, et al.) than they are to opt in. Which is to say that by swapping the default options, people will have to expend the exact same amount of effort to opt out than they would to opt in.

By playing to the default laziness of the average person, companies who've experimented with Thaler's "nudge" theory have doubled their retirement plan enrollment. Countries like Australia have reached near universal organ donation with an auto-enrollment policy, whereas Germany, which still requires people to elect to donate, hovers just over 10% participation. 

close-up image of a 401(k) plan

Critics have complained that this is too authoritarian--that employers shouldn't have to treat their employers like children. In an ideal world, this criticism isn't off base. But in the real world, where small businesses can not only attract new talent but can also cut administration costs by boosting employee enrollment, a "nudge" may be the least you could do.

While it is, by name, "paternalistic," it's not far enough for some. Lawmakers on both sides of the political divide have lobbied for the U.S. government to pass a law requiring company's to provide retirement and 401(k) plans and to auto-enroll them. To date, the idea has gained almost no traction. 


Time-Release Valve

Auto-enrollment 2.0 is the ability by employers to automatically escalate contributions at set intervals. Small businesses can use this to their advantage. Not only can you boost 401(k) plan enrollment, but you can set up automatic contribution increases.  


They Can Afford It

Kids today are all about money-saving apps like Acorns and Qapital, which basically round up card purchases to the nearest dollar and put that money into either savings or the stock market. If they're willing to do this for a few dollars a day, they're already acknowledging that they won't miss a few dollars a day. And if they can admit that, they're already halfway to a retirement account!

Someone earning $40,000 per year who contributes 6% to their 401(k) plan will spend about $6.50 per day. They'll retire in 35 years with more than $500,000. At 10%--less than $11 per day--they'll retire with $750,000. That's the pitch:

For the cost of a Starbucks latte, you can retire with a half million dollars.

Neither scenario includes employer contributions, assumed increases in salary, or extended retirement age. 

Well-managed 401(k) plans are a triple-threat asset to any small business. They boost morale, help workers live comfortably in retirement, and make your business competitive in a tight labor market. If you don't already have an retirement plan expert, contact Life Inc., Retirement Services today.