Take the free money. This is my regular mantra for employees in employer-sponsored retirement plans.
But many employees don’t enrol in company-sponsored plans or don’t take the maximum amount of free money available. When human resources professionals ask their employees why, their responses include:
- “I get a better return with my advisor, so I am contributing with her/him.”
- “The investment menu selection isn’t good.”
- “I’m going to have to pay tax on it in the long run anyway.”
- “I don’t understand/trust the process.”
While these are certainly some of the reasons plan members aren’t contributing, I don’t think they’re the true culprit. We all know, financially speaking, that the “free money” argument outweighs any of the above arguments. Employees providing these responses often know better, but are using these types of statements as a deflection from the real reason they’re not joining the plan.
Most often the underlying reason is the employee is struggling financially on a month-to-month basis and needs every dollar from their paycheque to make ends meet. When they’re confronted with the question of why they won’t join the plan, they don’t want to tell the truth because it’s embarrassing. We know that a large percentage of employees can’t go a single pay period without a paycheque or they’d be in financial hardship. Employers shouldn’t be surprised that some of these people are employed in their organization.
Many times, HR professionals will relay these responses to us and ask for an investment menu review or to benchmark the company contributions because of this feedback. When we review the plan, we often find the investment menu is sound and returns have been good. This once again illustrates that the reasons given for opting out aren’t always the true reason.
It’s prudent for HR professionals to review their savings plan with their insurance company and/or consultant. It’s also important to offer education sessions to employees about the plan and its benefits. For employees who haven’t enrolled or only contribute a small percentage to the plan, a better option than asking why they don’t join may be to offer simplified financial education. This can include:
- Saving for larger items;
- Controlling debt; and
- Broad-based financial wellness topics.
Many employees will see far more value in these types of offerings than the traditional types of employee education. People who are struggling financially today have a difficult time thinking about their retirement account 30 years down the road. Teaching these employees about how to get things back on track will provide more goodwill, and can also reducing presenteeism and boost morale.
Also, many companies have employee assistance programs. Part of an EAP’s menu of options is financial consultations for employees feeling financial stress, but it’s often difficult for an HR professional to offer this to people who aren’t volunteering the information. Reminding staff periodically about the EAP, including details about its services, can go a long way to helping an employee who’s feeling financial stress.
And encouraging staff members to face the real reasons they don’t contribute to the plan will benefit both employers and employees in the long run.