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Online 401(k) Plans: The Benefits for Employees and Employers

By Liz Sheffield

Some providers are still using archaic, paper-based methods for administering 401(k) plans. But today’s investors, especially younger employees, are less likely to engage with a plan or consider it a worthwhile employer benefit if they can’t enroll in a plan, receive financial education, and monitor their investments online. Top 401(k) providers are embracing innovation in the industry to ensure they meet the needs and demands of today’s employees and the employers who do the work in offering these plans.

For employers: Decrease manual HR work and lessen 401(k) compliance risks

Using an online system to administer a 401(k) plan helps employers efficiently and affordably manage their plans. With an online system, there are fewer opportunities for human error, and limited—if any—time is required for manual data entry. An online system allows employees to sign-up for the plan on a flexible schedule and make changes to their investments without being limited to a restricted open enrollment period. This can save a significant amount of time (and therefore, money) for small companies in particular, who may not have the budget or need for a full HR department, much less an in-house 401(k) specialist to manage the ongoing work and inherent risks (financial, tax-related, etc.) involved with a 401(k). Even if a company does have HR or operations professionals on staff, an online system that provides all employees with access to their 401(k) information can free up time so that the HR folk can focus on strategic projects rather than spending hours responding to individual requests or questions related to the 401(k) minutiae. In terms of convenience, online 401(k) plans also provide a reliable, easy-to-use source of record which employers can use to manage compliance. Companies have immediate access to relevant records and automated testing for things such as IRS non-discrimination testing, employee participation rates, and plan performance.

For employees: Online 401(k) access is crucial

Online financial activity is part of our day-to-day lives; managing our investments is no exception. According to 401K Help Center, 85 percent of new enrollees sign up online for their retirement plan. Whether an employee is auto-enrolled in a 401(k) plan upon hire, or if they are required to sign up on their own, having an easy-to-use online system has become a non-negotiable item for successful plans. To make the most out of the 401(k) plan, they need online access to view performance, change funds, request loans, and adjust their contributions as necessary. Employees with access to online tools—such as retirement calculators—will take advantage of them. One provider reported that “nearly 18 percent of calculator users increased their savings percentage after use, and 37 percent of employees who were not saving in their plan started contributing after using the calculator.”

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For employees: Online financial education and investment advising as employee benefits

But even with online access to their retirement investments, many employees may not have a good grasp about how to manage their personal finances. Should I pay my bills or my student loan debt? Save money in an emergency fund, or invest money for my retirement? Many employees see the answers to these questions as “either-or” dilemmas. According to the 2016 Harris Consumer Financial Literacy Survey:
  • 56% of adults give themselves a grade of an A or B on their knowledge of personal finance.
  • 75% of adults felt that they could benefit from advice and answers to everyday financial questions from a professional.
Unless someone has spent time studying personal finance or has a background in economics, chances are they haven’t received much education about how investments work and why it’s important to start saving for retirement sooner instead of later. Todays’ savvy employers have realized the need for more financial education and are looking for providers who offer online training and educational resources as part of their investment services so that employees have the financial education they need. Just as employees have questions about how to manage their finances, they have questions about how to manage their investments. The survey conducted by Harris revealed that 29% of adults say they are “not at all confident that they are saving enough money for retirement.” That lack of confidence about investments has negative ramifications for both employees and employers. When employees make uninformed decisions about their investments, they may make mistakes that cost thousands or even hundreds of thousands of dollars.

Employee participation and happiness = Employer ROI

From the employer’s perspective, lack of employee satisfaction with a 401(k) provider or confidence in investing in the platform can negatively impact enrollment rates and limit the employer’s return on investment. There are costs related to retention and employee satisfaction if employees don’t see—or experience—the value of participating in the 401(k) plan. In addition to financial education, advice and support are also required in order to drive 401(k) participation. Thanks to the increasing number of online 401(k) solutions, it’s not difficult for employers to offer employees independent, low-cost, and professional advice. Providers such as Human Interest have found efficient, cost-effective ways to offer personalized investment recommendations as part of their online solution while also taking administrative work off employers’ plates.

If you’re looking for a great 401(k) for your employees, click here to request more information about Human Interest.