When I present employee education sessions, employees often ask me what they should be doing in their 401k plan. In response, I share the following employee education tips:
Employee Education Tips
1. Make sure you are contributing enough to receive the maximum match
You would be surprised how many employees don’t do this. I estimate that in most plans at least 1/3 of all employees do not contribute enough. Employees who do not receive the maximum match are leaving free money on the table. The return on those extra contributions? At least 100%!
2. Don’t trade your account
Employees get scared at market bottoms and overly confident at tops. They need to resist the urge to sell all of their equities when they are scared. Conversely, when equity markets are making new highs, they should not transfer everything into equities. One of the best employee education tips I share is to advise them not to open their account statements during these time periods if they believe that will help manage their emotions.
We all have heard this over and over again from financial planning experts. Many employees like to concentrate their account balances in one or a few funds they feel will perform well or are very safe. Having all their eggs in one basket is not a strategy for success because they are essentially betting on only one economic scenario.
4. Keep your money in the plan
Employees work hard to save. They scrimp, deny themselves fun, delay purchases, etc. I ask them not to take loans, withdrawals or cash their 401k balances out when they change jobs. Taxes and penalties can reduce what they receive from these distributions by almost 50%. In addition, they are making it impossible to ever retire by spending their retirement savings now.
5. Keep saving – always
Employees stop saving for a number of reasons: their spouse loses a job, they want to save outside the plan for a home, car, boat, marriage, etc. Many employees, when the equity markets fall, stop saving because they believe it is a bad time to invest in the market. I suggest that they lower their contribution rates if they have to, but never go to 0%. Remember, we all need to average 15% in savings over our entire careers to retire at our current standard of living.
6. The most important factor is…
Ok, this is the best of all the employee education tips I share. I am always asked, “What is the most important thing I need to do to build the 401k account balance I need?” I ask employees to guess what the answer might be. No one ever gets it. It’s not how you allocate your balance, what funds you invest in, whether you market time appropriately, the cost of your investments or how they perform. None of these are the correct answer (although they are all important). It is how much you save. That is such an obvious answer that I always get a number of groans. But it is true. Nothing matters more than the amount that someone saves.
Make sure your next employee education sessions include these six employee education tips. Your employees will be grateful for the encouragement and support.
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or firstname.lastname@example.org.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.