The need for employee education on 401(k) plans

Financial security is increasingly top-of-mind for those in the workforce, and employers are recognizing the importance of providing robust retirement plans. Offering a 401(k) is a commendable start, but it should not end there.

To maximize the benefits for both employees and the organization, employers must also invest in educating their staff about these plans. Simply offering a 401(k) plan does not guarantee high participation rates. Many employees, especially younger ones, may not understand the importance of starting their retirement savings early. Education programs can highlight the benefits of 401(k) plans, such as tax advantages and compound interest, encouraging more employees to enroll and contribute.

The complexities of 401(k) plans can be daunting. Employees need to make decisions about contribution levels, investment choices, and understanding the implications of employer matches and vesting schedules. Education initiatives can demystify these aspects, empowering employees to make informed decisions that align with their financial goals and risk tolerance.

Financial stress is a significant concern for many workers, affecting their productivity and overall well-being. Understanding how to effectively save for retirement can reduce financial anxiety, leading to a happier, more focused and productive workforce.

A commitment to financial education also demonstrates that an employer genuinely cares about the long-term well-being of its employees. Employees who feel supported in their financial planning are likely to exhibit greater loyalty and engagement, reducing turnover and fostering a more stable workforce.

Fostering employee loyalty is becoming more important as we see a shift from people thinking primarily about traditional retirement to planning for financial independence that allows them to work because they love what they do but would like to scale back on hours. That keeps a person’s institutional knowledge with the company while achieving savings simply from having the person work fewer hours.

Offering a 401(k) plan also provides substantial tax benefits for employers. Contributions made by employers are tax-deductible, reducing the overall tax burden. Additionally, employer contributions to 401(k) plans are not subject to payroll taxes. These tax advantages can make a significant difference in the company’s financial planning and overall profitability.

Understanding 401(k) plans is also crucial from a compliance perspective. Employers have a fiduciary duty to act in the best interests of their employees regarding retirement plans. Providing education helps ensure that employees are making informed decisions, reducing the risk of non-compliance issues or potential litigation related to misunderstandings or poor investment choices.

Educational initiatives can be tailored to meet the specific needs of an organization’s workforce. Employers can offer a variety of resources, like workshops, webinars, one-on-one financial counseling and online tools.

An organization’s 401(k) provider should be able to help provide education. I usually visit with an employer’s staff in a group setting and then also with each person individually because each person’s idea of retirement can be different. And not just different from one person to the next but different from the reality of their life and financial situation. So, education often includes information about what a person might need to have in addition to their 401(k), like an HSA (health savings account) or Roth IRA (individual retirement account).

Education is a critical component that ensures employees fully understand and maximize the benefits of their retirement plans. By investing in comprehensive education programs, employers can enhance participation rates, empower informed decision-making, improve overall financial wellness, and ultimately foster a more loyal and productive workforce.

Editor’s note: Brooke Kersey is a vice president and senior retirement plan advisor at Arvest Bank. The opinions expressed are those of the author.