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Last night as I was sitting here doing my taxes I was pondering employee benefit plans and programs including the 401(k). I know, I’m weird like that. It’s one of those things that I do. Often forgotten by younger employees, it is an important benefit that serves your workforce in the long term. At the heart of any benefits package is a 401(k) plan. I’m not going to lie, there was a day when I couldn’t have cared less about a 401(k) plan. In fact, when I started my career, the only part of my benefits package I really cared about was how much I would be getting back from my benefits allowance. I chose the least expensive elements and pocketed the rest – it was a good system. But like most people come to realize at some point in their twenties, a 401(k) is vital. It’s a big deal. Like huge. Catch my drift?
401 (k) benefit programs are the red headed step child of your corporate total rewards program. They are important and necessary but often overshadowed by employee benefits perks such as Google’s death benefit package and unlimited vacation plans. It’s time 401(k) and those red heads get your respect and their due.
What Makes a Great 401(k) Benefit Program?
Whether you’re an employer, a job seeker or an employee, it’s nice to know how your 401(k) compares to the rest. Below, we look at the five major characteristics of BrightScope’s top 30 401(k) plans. How does yours stack up?
1. High participation rates
High participation rates are generally thought of as the key to providing a successful retirement plan. The more employees contribute, the more funds there are to invest. According to “Businessweek,” most companies have an average of 80 percent of employees enrolled in their retirement plans, though the average of companies on BrightScope’s list average 93.5 percent participation. They’re the best for a reason!
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This average has increased in recent years due to the fact that many companies auto-enroll employees and then give the option to opt-out. While you may not know the participation rate of your company’s plan, a company that auto-enrolls likely has pretty high participation rates.
2. Employer contributions
Employer contributions are important for two reasons: they encourage employee participation and they boost your 401(k)’s growth. Think your employer is pretty generous? The number one plan on BrightScope’s list contributes an average of $23,000 annually per participant! Jealous much?
3. Low fees
401(k)’s are one of the easiest investments you can make but they can be costly. When your employer offers a 401(k) retirement plan, they also take on the responsibility of complying with laws that mutual funds and other investments aren’t subject to, which means they’re paying someone to oversee these administrative tasks. The unfortunate thing is that these often get passed on to employees. The best 401(k) plans offer low fees, usually because the company pays a lot of the costs.
4. Immediate plan eligibility
More and more companies are offering immediate plan eligibility to their employees. This means that as soon as an employee is hired, he or she is eligible to enroll is the company’s retirement plan. Eligibility periods can be based on length of service or amount of hours but can be prohibitive to a great retirement plan for your company.
5. Immediate vesting
Any contributions made to your 401(k) are yours to keep but your employer’s contributions may not be. Depending on your company’s vesting policy, you may vest immediately, after two years or even after seven years. Since most employees only stay at a company an average of four to five years, and many stay far less than that, it’s pretty clear why this is an important component of a great 401(k) plan.
Total Rewards Program
How does your organization stack up when offering 401 (k) program benefits? Are they an important part of your total rewards program? For those of us in mid or late stream of our careers seeing the horizons of retirement, how important is a 401(k) program and does yours live up the hype?