Use modern 401(k) plan design to bolster your employee benefits strategy

Open enrollment presents an optimal time to reevaluate your employee benefits strategy and take stock of how well your retirement plan supports it. 

Whether your benefits strategy emphasizes talent attraction and retention or employee engagement and well-being, plan data and benchmarking can uncover whether your 401(k)-plan design aligns with your benefits strategy and, if not, what changes to make.

Talent attraction and retention
A few fundamental plan design best practices — including automatic enrollment, high default deferral rates, and immediate eligibility — can have an outsized impact on making a 401(k) plan an attractive and effective benefit for all employees.

Automatic enrollment overcomes many of the behavioral challenges that keep employees from getting started on their retirement savings journeys, including a lack of planning skills, choice overload, or inertia and procrastination. It may be an especially powerful tool for employers who prioritize attracting and retaining a diverse workforce. Recent Vanguard research found that automatic enrollment significantly influenced the participation rates of Black and Hispanic employees, especially lower-income Black and Hispanic employees.

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Automatic enrollment defaults have increased over the past decade, further strengthening the power of automatic enrollment. Today, 60% of plans default employees at a deferral rate of 4% or higher, compared with 39% of plans in 2014. In an employment landscape in which workers may have 10 or more jobs throughout their careers, a strong default rate can prevent workers from losing ground on their retirement savings progress when they change companies. This can support talent acquisition. Sufficiently high default rates can also nudge both new and tenured employees closer to recommended savings rates.

Finally, eligibility requirements can be especially impactful for employee attraction. According to How America Saves, nearly 3 in 4 plans allow employees to make voluntary contributions immediately after joining the employer, up from 65% in 2014. Empowering employees to start saving and investing for retirement immediately can be a compelling differentiator for employers looking to attract top talent.

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Employee engagement and well-being
Benefits committees may also have goals around employee engagement and well-being, and modern 401(k) plan design can also support these objectives.

Meeting short-term financial needs such as bills or emergency expenses while trying to save for the long-term goal of retirement can be a huge source of stress for workers. Over the past several years, the scope of 401(k) plans has expanded beyond an exclusive focus on retirement savings. Plans increasingly offer financial wellness tools to help participants with emergency savings, debt relief, planning for health care costs, and more.

Defined contribution plans like 401(k) plans are many Americans' first — and often only — experience with investing. Offering personalized advice within plans improves access and can help investors manage their short- and long-term financial goals. More than 3 in 4 participants now have access to advice according to How America Saves.

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Advice offers value across four dimensions: financial value, portfolio value, time value and emotional value. The emotional support and behavioral coaching inherent in personalized advice can help investors achieve financial well-being and peace of mind.

Stay ahead of a changing landscape
Periodic assessments ensure that the 401(k) plan effectively meets the evolving needs of employees and contributes to the goals of the employee benefits strategy. Plan data can help benefits committees understand and evaluate the behaviors and priorities of their employees, while industry benchmarking can contextualize their plan and keep it competitive.

As you review your benefits this fall, don't overlook your retirement plan as a powerful tool to strengthen your benefits goals.