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How a Smart 401(k) Investment Strategy Can Help Recruit and Retain Workers

With low unemployment and a lack of highly skilled workers in occupations such as engineering and science, how can a small business owner compete against the big players? Recruiting and retaining top level employees is a complex task for the employer. Do you hire a recruiting manager or spend valuable staff time which could otherwise be spent growing company revenue? There are strategic and financial benefits to using a 401(k) to recruit and retain workers.

The Retirement Crisis

A recent Deloitte research report, “Meeting the Retirement Challenge” found that only 3 in 10 people feel very secure about their retirement. Younger workers are watching their baby boomer parents cope with a bleak retirement picture. A BlackRock survey explained that those nearing retirement face a $36,350 income gap between what they have and what they’ll need in retirement. These dire retirement concerns compound along with fears about the instability of the Social Security system. Using a 401(k) to recruit and retain workers serves a dual benefit. First, the retirement crisis can be helped by small and medium business owners. Second, a low cost 401(k) plan with responsible investment choices is a powerful recruiting tool in today’s marketplace. Here’s how to use the 401(k) benefit to educate both prospective and future employees. The following scenario might be used in both internal communications and recruiting materials to entice workers both to join and stay with your company. Alex joins the Freewheeling Firm at age 25 and is automatically enrolled in the company’s 401(k) plan. Alex invests $200 per month and the company kicks in a $100 company match. Although his salary increases, Alex never increases his 401(k) contributions. During his working years, he contributed $96,000 and his employer kicked in $48,000. At age 65, Alex’s retirement account is worth $787,444. (Assumes a 7% annualized return.) Without the enticement of a 401(k) plan and employer match, along with the automatic enrollment, it’s doubtful Alex would have reached that size retirement stash on his own. Additionally, since Alex started investing at a young age, he could amass a large sum with relatively small monthly investments, leaving lots of room in his budget for other important goals such as buying a home and raising a family.

Gain a Competitive Advantage with a Robust 401(k) Plan

Many smaller employers avoid the entire 401(k) issue due to fears and concerns about cost. Yet, offering employees a plan can actually give your firm a unique competitive advantage. It’s not rocket science to understand that a happy work environment with superior benefits can lead to employee satisfaction and retention. In fact, several sources quantify the financial advantages for companies with superior benefits. Human resources professional and consultant, Susan Heathfield posited that benefits can add up to 7.3% bottom line profit to a company. Higher quality employees leads to greater productivity, innovation and profits. CNNMoney.com reports that 97% of larger companies offer a 401(k) plan. Whereas only 29% of firms with less than 25 employees offer a plan, according to the Small Business Association. When searching for top employees, without a top 401(k) plan, the smaller firm is in a less competitive position. Roger Wohlner, an experienced financial advisor from Arlington Heights, Illinois and founder of TheChicagoFinancialPlanner.com served as a consultant to several 401(k) plans over the years. The human resources contacts affirmed that choosing the 401(k) provider was an important component in a superior benefits package. Wohlner continued that “that most people are not going to make an employment decision based upon the 401(k) plan offered or the benefits package, but it could serve as a “tie breaker” so to speak, especially given some of the 401(k) trends of 2016. If someone is considering multiple job offers a good 401(k) plan might be the piece of the package that sways the prospective employee. Likewise, if someone is being recruited away and the new company has a lousy retirement plan they might opt to stay, if the new job isn’t a big move up for them.

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Level the Employee Recruitment Playing Field with a Savvy 401(k) Plan + More

Maybe your firm can’t offer the big salary bucks initially, but a 401(k) carrot can help recruit and retain workers. Eric McClain, CFP of McClain Lovejoy, explains how the flexibility of a 401(k) can further your business. Employee 401(k) contribution matching is a big draw, but there are other factors to sweeten the employee recruitment and retention pot as well. For retention, profit-sharing can be another draw for employee retention and can easily be combined with a 401(k) plan. Get creative and add other free or low cost benefits to entice and tether your employees to the firm. Free exercise classes are affordable to administer and give employees another reason to love the company. Flexible work schedules are desirable for two working parents. Mom or dad may not want to leave the great working environment with the opportunity to create their own schedule so that they can watch all of Junior’s soccer matches. For retention, a 401(k) plan may not be enough. But if you’re offering state of the art investment alternatives, your dedicated workers may think twice about leaving.

Final Advice About How to Use a 401(k) to Recruit and Retain workers

Implementing just any 401(k) may get employees in the door, but excellent investment choices with proven research-backed efficacy will help keep your employees. Current best practices investing strategies consist of creating a low cost, passive, index fund investment portfolio. In fact, 2013 Economics Nobel Prize winner, Eugene Fama provided the fundamental theory for the index fund investing approach. Consider a low cost 401(k) provider that offers low fee, diversified index funds. Using highly regarded index funds in your company’s 401(k) fund can keep expense ratios from 0.05% to 0.70% of assets under management. In contrast, don’t succumb to higher fee mutual fund providers with fees that top 1.0%. This small but important choice will save employees thousands of dollars over the years. Find a 401(k) plan that’s low cost to administer and includes the best index fund investing practices and you have a winning program for your firm and their employees. Want more general employee benefits strategies (not just a 401(k)!) for retaining your employees? Check out this article: 4 Employee Benefit Strategies to Maximize Retention. If you’re looking for a great 401(k) for your employees, click here to request more information about Human Interest.

Veteran portfolio manager, expert investor, and former university finance instructor. She has authored 3 money/investing books. Friedberg also owns the financial websites RoboAdvisorPros.com and BarbaraFriedbergPersonalFinance.com.


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The content in this blog post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Human Interest's investment advisory services are provided by Human Interest Advisors, LLC, an SEC-Registered Investment Adviser. Investing involves risk and may result in loss. Past performance is no guarantee of future results, and expected returns may not reflect actual future performance.