Originally published: September 8, 2023 (distributed by Andrews McMeel Syndication)
In celebration of National 401(k) Day (Sept. 8), I’ll put on my financial literacy hat and offer some advice. Everyone who works for a company offering a 401(k) needs to sign up -- yes, everyone.
Far too many eligible employees are left out. CNBC’s Your Money Survey confirmed that 41% of 2,700 people surveyed in August did not contribute any money to a 401(k) or an employer-sponsored plan. Everyone should contribute. And everyone who does participate needs to learn how to maximize the leverage that 401(k)s offer -- especially if the plan offers an employer match.
I’m giving you only surface-level advice, but I’m happy to do more as a longtime proponent of financial literacy education for individuals of all financial means. Every 401(k) decision comes down to understanding how the plan works, and that calls for education, which calls for taking the time to study the plan -- all extraordinarily important to do now, not later, since you lose if you delay.
I first researched 401(k) education long ago to prepare to write my first book on the subject in the 1990s. “You and Your 401(k)” was published in 1996, followed by “The 401(k) Plan Handbook” in 1997.
Today, my writing is for broader audiences, but my financial literacy mission is still narrowly focused on promoting 401(k) education. There is simply no reason for employees to miss out on the full advantages of 401(k)s -- even if they believe they can’t afford to contribute.
On that note, let me throw a challenge to HR, benefits and tax experts. What advice would you give to those who feel they cannot afford to contribute? How can you make the contribution affordable? This is a subject I’ve written about, and there are answers that can help.
Answers to questions like those and others can help employees take charge of their retirement security, a valuable goal for employers and employees alike.
Teaching people to use the 401(k) to help achieve retirement security led me to do more than just speak and write about the subject. Five years ago, I created and funded the 401(k) Champion® Competition, with the goal of encouraging employees to talk with each other about their 401(k) benefits. The 2023 contest is now live. See 401kchampion.com.
The national competition is centered on 401(k) education on a grassroots level. Participants write an essay about how they would advise co-workers on why they should contribute to and maximize their 401(k)s.
If you’d like to support the educational effort, tell participants about the contest, which I run pro bono. Three winners earn the title of 401(k) Champion® and $1,000 each.
I’ve said before that a peer-to-peer message from one 401(k) participant to another can be more effective than attending an employee enrollment session or reading a brochure.
That is reaffirmed by 2022 401(k) Champion® Kevin Alexander, who said: “I’ve received a lot of advice over the decades. ... The best advice I ever received? Start a 401(k) and do it today.”
If you are a benefits or HR expert who wants to improve employee understanding of the benefits of 401(k)s, I invite you to write to me (firstname.lastname@example.org). I will make myself available to share what I’ve seen work to start a dialogue among employees about their retirement security and how to maximize the leverage a 401(k) offers over what they can do on their own.
Just consider this: If there is a dollar-for-dollar employer match, what investment can double your money so easily?
This is an exciting time for 401(k) plans for other reasons as well. As Brian Anderson, editor-in-chief of 401(k) Specialist Magazine, points out: “Recognizing its potential, lawmakers crafted many provisions in the SECURE Act of 2019 and SECURE 2.0 in 2022 specifically to make it easier and more affordable for small- and medium-sized businesses to provide 401(k) plans for their workers.”
Finally, for the skeptics: No, I’m not in the 401(k) business.