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by HR Guy | March 31, 2009


Dear HR Guy:

I recently set up a 401(k) plan at my job. The owners of the firm were quite excited about providing this benefit for current employees. They also saw it as a way to make the company more attractive to potential employees down the road. However, out of about 250 eligible employees, only 34 have signed up. As the head of HR, how can I encourage more employees to sign up?

Dear HR manager:

Employees often don't understand the benefits of 401(k) programs, and therefore are reluctant to sign up. Have you given a formal presentation to employees to show the benefits of signing up? Have you explained that participation will reduce their taxable income? Does your firm offer matching funds? If so, give examples to show how this can help employees build wealth.

If you have done all this and still have a very low sign-up rate, you should talk to your employees to find out their reasons for not joining. You may just find they don't understand the benefits. Whether you are just starting your career, are in the middle of it, or nearing retirement, 401(k)s help everyone. There really aren't any good reasons to not participate.

Talking with employees about their specific reasons for not enrolling will give you the opportunity to explain in greater detail how the plan works and how it will benefit them. If your employees say they are stretched for cash, and that's why they haven't signed up, compare the pre-tax amount that goes into their accounts to the lesser amount that is actually taken out of each check. If they are afraid of losing their money, explain that while 401(k)s are certainly not risk free, they're almost always a better investment than a low-interest savings account. Employees should also understand that they can manage their risk because they have a choice of which funds their money goes into. It could also help to give examples showing what the value of the account will be when they retire. If they say they don't expect to be employed at the firm that long, explain that when they leave, the funds can be rolled over to another account that they would continue to control. All in all, you can't force people to join, but demonstrating the folly of not signing up may be just the encouragement they need to change their minds.


Filed Under: Workplace Issues