Retailer-friendly 401(k)s: Crucial for Employee Performance and Retention

by Jeff Schulte

401kA 2015 Bank of America study revealed that employees cite financial stress as their #1 concern – a rating 5 times greater than they rank their personal health. A similar Prudential study cites 7 out of 10 human resource managers who confirmed that personal financial issues have a large impact on employee performance. The more you can do to alleviate employee financial stress, the higher the chances that your team can focus on work and move your company’s goals forward.

By now you’ve probably heard of low-cost, high-value 401(k)s aimed at small to medium sized businesses. Retailer-friendly 401(k)s are similar, but with a few extra, specialized traits. They use advanced technology to create a more engaging, user-friendly, and smartphone-based platform for retail employee groups. The retailer-friendly 401(k) is a broad-based benefit that can help retail employers hire and retain valuable workers – while meeting IRS nondiscrimination testing requirements.

What’s retailer-friendly about them?

Two things. Firstly, a retailer-friendly 401(k) is designed to deal with the basic nature of the frontline employee’s work – standing in front of customers all day instead of sitting in front of a screen.

Secondly, they’re designed for employees who are scattered and on different schedules, which traditionally has made it very tough for centralized HR to connect with retail workers.

Why are they crucial for retailers?

Firstly, they provide an advantage in hiring and retaining quality employees. Benefits are compensation, too – but only if employees see the value. Retailer-friendly 401(k)s go the extra mile to help employees see that value.

401kSecondly, high 401(k) participation and savings rates help employers save, too. Traditional 401(k)s are not designed to promote high employee participation rates, especially among hard to reach employees. Historically, lower participation rates among front-line associates limit retirement savings opportunities for management and owners, due mainly to the resulting adverse IRS nondiscrimination test results.

Our own data shows that retailers who have taken advantage of a retailer-friendly 401(k) have seen around 90% of their employees participate in the plan – at average savings rates above 7%. These participation and savings rates are 45% and 25%, respectively, above their averages for the wholesale and retail trade category, according to Vanguard’s How America Saves, 2015 report.

How do they work?

With new mobile platforms, direct involvement from HR staff is not required. Video and “dynamic personalization” applied to 401(k) enrollment can guide people through the setup process and get them rolling with their retirement savings program – all by themselves – in a few short minutes. Integrating a short, interactive video on the front-end that walks employees through the process and answers questions goes a long way toward driving adoption.

Reducing employee decisions is critical, too. Dynamic personalization minimizes the information that employees need to supply, and boils their decisions down to only those that are pertinent. The result: dramatically accelerated enrollment that can be accomplished in the span of a 5-minute coffee break. Top it all off with autopilot 401(k) plan design that complements the technology to get employees off to a strong start. That typically includes auto-enrolling employees with a default deferral rate that automatically increases by 1% each year, and an appropriate balanced investment such as target-date funds. Plus, employees can tweak their plan parameters with the click of a button.

Retailers already know the power of a consumer-friendly strategy. The takeaway here is that a consumer-friendly strategy has been applied to the 401(k) itself. Because the easier it is for employees to engage with their 401(k), the more likely they are to want it and use it.