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Financial Management: 401(K) or What? Tax-deferred 401(K) plans are a source of unending frustration to many employers. Reasons: low participation caused by poor understanding of investment options or low interest in saving for retirement or both. As a result employees don’t feel benefited and employers don’t feel appreciated for what they are providing. Even matching contributions don’t seem to change the picture very much! Everyone seems to be on their own here, and companies have sometimes gone to very creative lengths to raise employee awareness and participation. A recent issue of CFO Magazine, for example, described such techniques as investment workshops, personalized retirement planning reports, outside investment advisors or even portfolio managers for individual participants, and recently, on-line 401(K) administration. Each has had success in some companies, but no one is claiming they will necessarily work in yours. The problem seems to be complicated by the specter of employer liability for investment performance that falls below expectations. The US Department of Labor has drafted education guidelines that should help encourage education while limiting liability, but they were not final at press time. In any event, what can smaller companies do on a limited budget? A 401(K) plan is still one of the best tax-deferred savings options available, and any company that doesn’t have one should at least consider it. But first, we strongly advise a survey of your employees to see what they want and what they feel they need (another space age concept). A survey of their goals and desires can win you points for just asking, and the answers you get back could save you a bundle in funding unwanted benefits. Remember the objective is to keep your employees happy and productive, not to become surrogate parents. Your people might very well only be interested in current spendable income, in which case no retirement program they must contribute to will get much attention. You may instead want to look at a "Section 125" cafeteria plan that will save you and them some current taxes. We know several knowledgeable people whose companies provide a host of such employee benefit options, and we can make available to clients a pretty complete summary of the options and services offered by the major 401(K) providers as a starting point.
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