Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas www.hrp.net. With countless business priorities to be concerned about, it's easy to lose sight of the degree to which employees are taking advantage of your company's 401(k) plan, as measured by participation and deferral rates. Here's some advice from experts on turning the tide.

1. Toll Free: 877.880.4477
Phone: 281.880.6525
Improving 401(k) Performance:
A Timely Refresher Course
Improving 401(k) Performance:
Improving 401(k) Performance:
A Timely Refresher Course
A Timely Refresher Course
www.hrp.net

2. » In a classic study of 401(k) participant behavior by the National Bureau of
Economic Research, employees' tendency to "follow the path of least
resistance" was well documented. For example, if new employees aren't
automatically enrolled in a 401(k) plan when they join the company,
many don't bother. But when automatically enrolled -- surprise! -- they
are highly likely to stay in.
» Although the study didn't address it directly, the same point applies to
automatically enrolling existing employees during the annual enrollment
cycle and putting the burden on them to pull out. The NBER study did
document that employees will go with the flow on the default investment
option, as well as the deferral rate (provided that it doesn't give them
sticker shock).
» Moral of the story: Your plan design should recognize the power of
employee inertia, and use it wisely to achieve good results for all
concerned. Defaulting new participants off at a relatively modest initial
deferral rate is okay if you provide for a reasonable ratcheting up of
automatic deferral rates so that employees can achieve the savings they
will need. www.hrp.net

3. Keep up the Communication
» None of the above means, however, that once you have gotten the ball
rolling, employees don't need regular pep talks and education about
what's going on with the plan, their investments and what it is
accomplishing to enable them to reach their retirement goals. And getting
the message through requires connecting with them using multiple
modes of communication--"an integrated mix of phone calls, e-mails,
workshops, one-on-one consultations and direct mail," according to
Fidelity Investments.
» Rick Meigs, Founder and President of the 401(k) Help Center, concurs.
Research he has seen determined that employees who receive
customized communication on a regular basis contribute nearly one
percent more to their 401(k) accounts than those who do not.
www.hrp.net

4. Raising Comfort Levels
» He also stresses the importance of making participants feel comfortable
with their investment decisions. Doing so, especially in face-to-face
meetings with qualified investment advisors, both helps bring in more
participants overall, and inspires existing participants to boost their
deferrals, he says.
» When choosing retirement plan vendors, Meigs says, small employers
need to insist up front on a package in which employees receive
opportunities on a quarterly basis to attend a general education session,
and at least annually to receive a one-on-one session with an adviser.
» Meigs recently compiled a laundry list of tips on increasing employee
participation, and posted it on the 401(k) Center website. He said that
many small employers sometimes overlook the fundamentals, particularly
if they launched their plan years ago and what was once optional is now
almost obligatory. Following are some of those pointers:
www.hrp.net

5. Enrollment Boosters
1 Shorten or, ideally, eliminate enrollment waiting periods for new hires.
1
True, if a new employee is enrolled immediately and doesn't work out,
there will be more hassles involved. But on balance immediate
enrollment is the way to go.
2 Provide a matching contribution.
2
Employers that eliminated or suspended matching contributions during
the recession generally have restored them, recognizing their
importance.
3 Offer plan loans and hardship withdrawal options.
3
Many employees have a fear of commitment and will be reassured by
the knowledge that they can tap their balances in a crisis. "Emphasize
these provisions in enrollment meetings," Meigs says. However,
employers should also convey that these options should not be
exercised casually.
www.hrp.net

6. Enrollment Boosters cont-
4 Make a broad array of investment options available. With proper
4
accompanying investment education, employees will welcome having
10 to 15 choices "that are well balanced between index funds and
managed funds," Meigs says. Target-date funds are an increasingly
popular choice, of course. Even if employees simply "follow the path of
least resistance" (as noted in the NBER study) and stick with the default
option, knowing they have alternatives helps boost enrollment,
according to Meigs.
5 Make it clear to employees that you are paying attention to the
5
performance of funds in the investment line-up, with regular reports
and commentary comparing performance against a relevant
benchmark. The actual replacement of under-performing funds offers
the ultimate evidence that investments are being closely monitored.
www.hrp.net

7. Getting every last employee to become an active, aggressive 401(k)
participant probably isn't in the cards. But there is always room for
improvement.
Improving 401(k) Performance:
Improving 401(k) Performance:
A Timely Refresher Course
A Timely Refresher Course
www.hrp.net

8. 14550 Torrey Chase, Suite 100 Houston, TX 77014 USA
Toll Free : 877.880.4477
Phone : 281.880.6525
Fax : 281.866.9426
E-mail : info@hrp.net
www.hrp.net