Employee communication is important for a successful 401k program. Though employers must meet certain reporting and disclosure requirements, convincing employees to participate is integral for the plan's success. If employees are shown how the arrangement can help them save for their retirement and defer taxes, their appreciation of the program should lead to greater participation.
Information can be disseminated in many ways. Employee communication using printed material, videos and slides are important, but face-to-face meetings, targeted and individualized approaches can be more useful. An enrollment meeting is advisable when the 401k is established. Mutual funds frequently provide excellent information for 401k arrangements they maintain; however, if the plan is managed by a third party administrator or the employer, it may be necessary to obtain communication material from an organization that specializes in this function. The effectiveness of employee 401k communication can be measured by surveys, employee advisory groups and other methods.
Employees should receive the following information regarding the 401k plan and how it works:
1. Information with respect to monies entering the fund should be provided. If matching contributions are used, it is important to explain how they work. An appropriate matching contribution can increase employee appreciation, lead to greater participation and, possibly, a decrease in employer contributions that may be required to meet certain non-discrimination requirements. A profit sharing contribution may also increase appreciation, but usually not as much as would a matching one.
2. Information regarding investments and participants' account balances should be available. Investment information provided to 401k participants need not be as extensive when investments are pooled as when they are participant-directed. In the latter, the employer can decrease his fiduciary liability by meeting certain requirements under Section 404(c) of ERISA. To accomplish this participants must be offered a broad range of investments (at least three alternatives) along with other requirements. The employer should provide investment information and education but not advice, even though the line between them may be blurry. Investment education meetings, financial counseling and use of the Internet should be considered. Participants must be provided with all items required by governmental reporting and disclosure requirements, including a Summary Annual Report, reflecting the plan's annual accounting.
3. Information with respect to distributions should also be provided. Distributions may be available through account loans, hardship withdrawals (if available) and on termination from employment. Although a 401k is designed to provide funds at retirement, allowing earlier withdrawal can increase participation.
If you have questions or need assistance, please complete our short form. We will reply to concerns of employers and their representatives promptly. Or call us at 718-793-9885. Our web site home page contains additional useful information about 401k plans.