Go beyond a basic 401(k)

Go beyond a basic 401(k)

Give your employees more than just a 401(k), join the movement.

5 min read

Helping Employees Understand Their 401(k)

Healy Jones
May 11, 2017
Helping Employees Understand Their 401(k)
Table of contents

If your company already offers a 401(k) plan, then you know it’s a great way for you and your employees to invest for retirement. What you may not know is that 43% of young millennials don’t know what a 401(k) is. That’s according to a recent survey that also found that 20% of 18-24 years-olds don’t know what “CD” in “a CD offered by a bank” stands for. (They may not know what a compact disc is either!)

However, we shouldn’t blame the young crowd for not being up to speed on all things financial. Financial literacy classes are hardly common, and millennials are a long, long way from retirement. They may be in no hurry to brush up on exciting topics like “maximum annual contributions” or “required minimum distributions.”

The truth is, many of us who are far removed from the millennial set could use a financial primer. According to the same survey, a significant number of Americans of all ages thought a 401(k) was a “tax credit for retirement.” The researchers don’t mention what percentage of respondents thought a 401(k) was a really long foot race!

In yet another measure of America’s financial literacy, the FINRA Investor Education Foundation found that 38% of those taking the organization’s Financial Capability test didn’t understand compound interest. Many struggled with the concepts of inflation and investment risk. The net, net? The FINRA foundation gave failing grades to two-thirds of the more than 25,000 test takers.

You can’t get where you want to go without knowing where you are

The good news is, this survey data is information you can use. It is helpful to know that not all of your employees are Warren Buffett protégés. Many may need help understanding how a 401(k) plan works, and then need an explanation of the investments offered in the plan.

But does that mean you need to set up a whiteboard in the lunchroom and become a part-time finance professor?

Lowering the learning curve

Fortunately, no. Good plan design can get your employees enrolled and investing without asking them (or you) to become 401(k) experts. For example, to avoid having employees wade through stacks of forms just to get enrolled, you can ensure that your plan has an auto-enrollment feature. This way, each employee who becomes eligible automatically participates in the 401(k). The sooner the employee is in the plan, the sooner the saving starts.

And rather than having employees figure out which investments to select, a good 401(k) plan can automatically invest each employee’s contribution into an appropriate fund. For example, a young employee’s contribution might be invested in a target date fund with a retirement date of 2055. An older employee might well be invested in a fund with a target date closer to 2040. This default option is called a Qualified Default Investment Alternative, or QDIA.

Asking workers to complete complicated forms and wade through investment options can be a recipe for procrastination. Getting employees enrolled and invested is the first step toward a successful retirement. And they can always change their investment options or even leave the plan.

Help from DAVE

Younger employees may especially appreciate help in enrolling in the 401(k). In fact, millennials under 30 typically want guidance from their employers. And although retirement is merely theoretical to many millennials, that age group is most likely to prefer default investment options according to research by a major financial firm.

Placing enrollment and investing on autopilot doesn’t mean employees should not become well versed in how their 401(k) works. They should also understand the potential risks and rewards of the various investment options available. At ForUsAll we have our own retirement expert available 24/7. That’s our award winning virtual advisor we call DAVE. DAVE can explain your plan’s features, what auto-enrollment options have been selected, and what other options are available. In the 401(k) world, we call this “a great onboarding experience.” DAVE can even give your employees the chance to automatically increase salary deferrals year after year.

After DAVE explains your 401(k) plan, your employees may still have questions. At ForUs all we have real live investment advisor representatives to answer your employees’ financial questions – even if they don’t have anything to do with their 401(k). They may have a question about student debt, credit card minimum payments, or about the best way to accumulate savings for a down payment on a home.

Go beyond a basic 401(k)
Give your employees more than just a 401(k), join the movement.
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Healy Jones
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This material has been prepared for informational and educational purposes only and should not be construed as a recommendation by ForUsAll, Inc., its affiliates or employees (collectively, “ForUsAll”)  to activate a cryptocurrency window or invest in crypto.  Investing in crypto can be risky and investors must be able to afford to lose their entire investment.  You should consult with your own advisers before activating a cryptocurrency window or investing in crypto.  ForUsAll does not provide legal, tax, or accounting advice. Please refer to your Plan's fee disclosure for more details.© 2023 ForUsAll, Inc. All rights reserved.
1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.