Maximizing Your 401(k) Plan: Beneficial for Employees, Critical for Employers

Despite your best efforts as a plan sponsor, many employees fail to utilize their employer-sponsored 401(k) plan options fully. With a significant portion of the workforce struggling to save for retirement, you want to adopt strategies that improve outcomes for individual employees while minimizing employer costs associated with high turnover. 

By fostering a supportive environment around retirement planning, you enhance employee engagement and loyalty. 

Encourage participation in employer match 

One of the most effective ways to enhance retirement savings is to ensure employees take full advantage of your company’s matching contributions. As a plan sponsor, you can educate your employees on how employer matches effectively serve as free money, significantly boosting their retirement savings.  

If your plan matches 50% of the first 6% of employee contributions, it is crucial to communicate how failing to contribute at least that amount equates to lost benefits. Foster a participation culture to increase job satisfaction and retention by improving employees’ financial readiness. 

Promote maximum contributions 

Educating employees about the contribution limits for 401(k) plans is equally important. For 2024, the maximum contribution amounts are structured as follows: 

• For employees under 50 years old: The maximum contribution is $23,000. 
• For employees aged 50 and above: They can make an additional catch-up contribution of $7,500, bringing their total possible contribution to $30,500. 

Resources and workshops outlining the tax advantages of maximizing contributions can significantly benefit your workforce. When employees understand how pre-tax contributions lower their taxable income, they are more likely to contribute fully, benefiting your organization through reduced turnover.  

Educate on investment options 

Navigating the investment options within a 401(k) can be daunting for employees. As a plan sponsor, you can facilitate education sessions that explain the variety of investment choices available — such as target-date funds, index funds, and bonds.  

By encouraging employees to diversify their portfolios based on risk tolerance and retirement timelines, you equip them with the tools necessary to make informed investment decisions.  

Partner with a dedicated advisor 

A critical component of effective employee education is partnering with an advisor who genuinely cares about your employees’ financial well-being and is willing to lead educational sessions.  

A dedicated advisor can offer tailored guidance and support, ensuring your employees feel comfortable asking questions and discussing their retirement goals. This partnership can create a more engaging atmosphere, making employees more likely to participate and take actionable steps toward their retirement savings.  

Investing in a knowledgeable advisor enhances the quality of the education sessions, ultimately leading to better employee outcomes. 

Regular review and adjustment 

Encourage employees to review their 401(k) regularly accounts to ensure they are on track for retirement. By providing ongoing education about assessing their financial goals, risk tolerance, and investment performance, you help them adapt their strategies as life circumstances change. This support can significantly reduce turnover costs, as employees who feel financially secure are more likely to remain with your company. 

Promote holistic retirement strategies 

While the 401(k) is a cornerstone of retirement savings, it’s vital to encourage employees to consider their broader financial strategy. Providing information about IRAs, Roth IRAs, and other investment accounts can help them create a diversified retirement plan. As a plan sponsor, you can facilitate discussions about rolling over old 401(k) accounts into current plans or IRAs, simplifying their financial management and promoting a sense of control over their financial future. 

By actively supporting your employees in maximizing their 401(k) plans, you’re fulfilling a regulatory obligation and fostering a culture of financial wellness that enhances employee satisfaction and reduces turnover. Education on employer matches, contribution limits, investment options, and comprehensive retirement strategies can empower your workforce to achieve financial goals.  

Ultimately, a well-managed 401(k) plan, combined with the support of a dedicated advisor, not only builds a solid foundation for your employees’ retirement but also contributes to a more engaged and committed workforce.