Make Saving Simple: Automatic 401k Enrollment
I've always disliked the popular interpretation of the Tortoise and the Hare fable. Slow and steady wins the race, my eye! The tortoise did all that he could. The hare took a nap and barely lost. My interpretation – use your talents (and resources) frugally and you will get the best result possible. If the hare had appropriate incentives…
Let's take the unlikely leap to 401k participation and investing.
There are many reasons an employee might need incentive to enroll in a company 401k plan. For some, there's a lack of financial literacy. For others, it has less to do with understanding finances and more to do with the reality of living paycheck to paycheck. That's why many Employee Fiduciary clients choose automatic enrollment in their 401k plans – we have it in our plan and I encourage it as a best practice for small businesses.
You might be wondering why an employer would want to push an employee into forcibly saving for retirement – and why the Frugal Fiduciary supports it. Ayn Rand, Milton Friedman, John Locke and Henry David Thoreau would all likely rise in protest! But over the years, I've observed a few things most small business owners have in common:
1. They want to grow their businesses
2. They want to attract and retain the best talent
3. They want to treat their employees well, because it is the right thing to do
By offering a 401k plan with automatic enrollment, these employers are kindly and firmly incenting their employees to save for retirement. The tortoise gets a bunny rabbit "makeover," to extend the metaphor past its breaking point.
Employees who truly cannot put aside any of their pre-tax earnings may always opt-out. But for those who can and are simply sitting on the fence for one reason or another, automatic 401k enrollment is a powerful benefit that will pay dividends throughout an employee’s retirement years. Can you as employer offer a year-end match? Even better. This is not a carrot and stick approach – this is a carrot approach. Results: Employee builds a nest egg, employer earns goodwill and enhances employee retention.
As readers of this blog know, frugality is a core value underpinning our work at Employee Fiduciary. Automatic 401k enrollments fulfill the promise of frugality by creating a benefit today that shows care and concern for the well being of employees far into the future – and it is consistent with a free market approach to business.
As always, comments and dialog are encouraged in the comment box below!
About Greg Carpenter
Greg Carpenter founded Employee Fiduciary in 2004. With 29 years of experience in accounting and finance, Greg has brought his expertise to a variety of advisory, senior and executive management roles. Greg has worked for a national accounting firm, a Fortune 500 plan sponsor, a major brokerage firm, and he served as the CEO of a major 401k TPA firm. He is a CPA and earned his BA from Yale and his MBA from The University of Chicago Booth School of Business.