By random circumstance I’ve had three of the most boring HRish types of conversations in the past month about 401K! Can you imagine me talking about 401K? It’s so, well, it just regular old HR talk! One conversation was with our banking partner (Shoutout to PNC, 33 year business relationship with them and I value that greatly!), two others with trench HR peers, but all three conversations were about the exact same thing — Auto Enrolling employees into 401K.
This is actually a really polarizing topic in HR, I’ve found! It comes down to two schools of thought:
1. HR Pros who believe auto enrolling is helping their employees
2. HR Pros who believe they are infringing on the privacy of their employees by auto enrolling their employees
I’m in camp #1! In fact, I’ll go on record in saying that auto enrolling your employees into 401K is the single greatest gift you can give to your employees over their career with your company. Bam! I said it.
Let me give you a few facts about employees:
1. The majority of your employees that are under 30 have no idea they should be saving for retirement – when it’s the most important time to do so.
2. The majority of your employees at any age – don’t save enough for retirement.
3. The majority of your employees think a magical fairy will come along at age 65 and pay for them to live the next 25-30 years.
These are all actually true!
Most people don’t think about retirement and the amount of money it will take to retire until they get to be around 50. At that point, it’s too late and they are then on a path to be a senior citizen greeter at Walmart. HR can change all of this. HR can ensure that when your employees get to be around retirement age, at least they might have some hope of sitting around enjoying not working! It’s easy. It’s called Auto Enroll – check it out.
If it’s so good why aren’t all companies doing this?
It’s America, right? We hate being forced to do anything. What!? You mean your going to force me to sign up for 401K and save for my future! How dare you! This isn’t Russia!
Want to take 401K Auto Enrollment one great step further!? Auto Enroll your employees and have 3% taken out of their pay automatically as well. Just auto enrolling really does nothing but making it easy for people to start saving, but you can actually auto enroll and start them out with an automatic deduction of your choosing. The employee at anytime can choose not to participate and stop the deduction, but very, very few ever will!
Can you imagine the difference you could make in your employees life by
forcing helping them start saving for retirement? For many of your employees, it would be the best thing HR ever did for them, period.
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First off its not forcing but rather a default. Like the cell phone ringtone, instead of being set at silent, it comes with a ring and you can change it anytime. Is anyone still arguing this? Secondly – Hallelujah to making the default something good for us. Yes, saving is good and almost all employees want to save, but the paperwork and choices are too confusing and vast and so they do nothing. Now how can I get a default that gets my ass out of bed and to the gym!
1. Forget the Employees! The Employer already bears all the risk from starting a company. What ER said hey “lets promise these EE lifetime pensions if they work for us for say 30 years”… WHAT WERE THEY THINKING? Why pay someone for work they used to do. Its like paying a chick who USED to date you! How could I ever afford to hire new chicks to date? I’ll run out of money and have to close up shop.
401(k)’s are the way of the future. It’s up to you if you want to retire …sooner or later….depending how much discipline you have to save and how the markets are performing while your contributing to your 401(k) (this determines your % return)
2. CD’s are paying out such low amounts because interest rates on notes, bills and bonds are also so low. When you buy a CD from a bank for a specific duration (6mo,1yr,3yr, 5yr) they are guaranteeing you a certain return on your money with very little risk to the investor. The banks have to be able to go out and buy notes, bills, bonds at a higher rate so they can make money. It’s all about the spread and currently the spread is small.
3. You don’t have to have a financial planner to retire. Many people save blindly and end up retiring. However, Its a financial planners job to provide guidance for you and your financial decisions to maximize opportunities and minimize losses. You hire a financial advisor to help guide you through financial ups and downs of the market. Its their job to make sure you don’t ask a co-worker what you should be investing in within your 401(k), I’m sure they have no clue.
Here’s a list of other things we financial advisors do:
How much you need to save for retirement to meet your goals
What types of retirement accounts to use (IRA, ROTH, 401(k), etc.),
What type of mortgage you should have
What type and how much insurance you need (this would include life insurance, long term care insurance, disability) How much to keep in your emergency fund
What changes might improve your tax situation
What rate of return you will need to earn to achieve your goals over a given time frame
Whether it makes sense for you to pay off your house
As an HR person who used to work for a Financial Investment firm – that’s what I can tell ya 😉
Tim – Enjoy northern Michigan and continue to ponder what your companies match should be. May I suggest 25% of the first 50% of the first 9% of employee contributions… jk
I’ll be up North next week at Harbor Springs, Mackinac Island, and Pictured Rocks pondering the same thing… (yes that’s a humble brag)
I fall squarely into the camp of Jon Stewart on this one. Why does America value gambling in the stock market more than it values work? Why have we moved away from traditional retirement planes to defined contribution plans where the employee bears more of a risk than the employer? And why are CDs and savings accounts paying out at such a low interest rate? Why do you have to have a financial planner to retire?
There are serious and complicated answers to these questions, but I think we have an obligation to rethink retirement in America.
Rolling over your 401k to Fidelity is not the answer to financial security in your 70s and beyond. Gambling in the stock market via E-Trade and investing in stock is not a retirement plan, either.
And taking a portion of an employee’s salary and putting it into an at-risk portfolio isn’t a retirement plan. It’s a scam.
And I’m not an expert but it’s my understanding that pension plans work — in conjunction with a whole host of social programs — but it’s the mismanagement of the pension plan and the casino-like atmosphere of the stock market that has bankrupted many of these funds. Municipalities and states don’t suffer from the burden of pensions as much as they suffer from greed and mismanagement of those plans over the past 10 years.
I used to work for what is often considered the worst company to ever work for (by some web sites…2 years running). But I was always impressed by how the CEO framed the decision to auto-enroll and share dividends. Every quarter at our all employee broadcasts, we would share a slide that showed how the money they set aside today would impact them in their future. It was a valuable lesson for our employees, especially in our call center when many were still in school.
As long as you can opt out, I think it can be a helpful tool to gently remind folks that someday, you are going to want to take it easy without having to worry about money.
I totally agree with you – the sooner employees are saving for retirement the better off they are. Most won’t miss it, given the tax savings, and will be grateful down the road. I was fortunate and my Dad pushed me to enroll as soon as I was eligible for my company plan, and encouraged me to bump up the percent every time I got a raise until I was putting in the max. Now, per projections I just ran a few days ago, I’m well situated for retirement. If I had waited until now (late 40’s) to start, would have been a much different picture.
As you say, we in HR can make such a positive difference for our employees – they may not appreciate it initially but when they turn 65 they will say – wow, my HR person was really looking out for me! Well, a girl can dream can’t she!