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  • Mark Nicholas

What Message is Your 401(k) Sending?

It's time to think more deeply about what messages your 401(k) is sending to employees.  So much focus has been on using nudges and behavioral science to improve plan metrics like contribution rates and investment selection that many fiduciaries may not even realize that the plan might be sending a different message than you think.  Here are three subtle messages your 401(k) plan could be giving participants that may not be on your radar:


Your differences don't really matter. 


Auto enrollment, auto escalation, and target date funds.  If the goal is to make sure nobody feels unique, this is the trifecta!  The reality is that each participant is in a unique financial situation, has different financial priorities, and different investment preferences.  For some employees saving for retirement isn't what they should focus on to improve their overall financial situation. Some savers would contribute more if they had investment options that better aligned with their values, which fiduciaries can now consider without fear of DOL scrutiny after the new final rule on prudence and loyalty in selecting plan investments was issued last week. Automated 401(k) decisions seldom optimize your employees finances but frequently optimizes provider compensation.


Action: Position the plan properly as part of participants holistic financial plan, not the ultimate financial goal.


If you can’t afford to save, you are the problem. 


As of September 2022, 63% of Americans were living paycheck to paycheck, including 49% of workers earning in excess of $100,000.  These folks are getting crushed by inflation and hearing messages about how the 401(k) makes it easy to save for retirement.  With high auto-enrollment rates and automatic contribution escalation provisions common, workers feel pressured to keep up with their peers & take advantage of generous matching contributions even when these aren’t the right financial decisions for them.  It's easy to be upside down on finances these days - a single unexpected expense can easily have a catastrophic impact on a family budget. When this happens, people need supported, not shamed, but the constant pressure to contribute more to the 401(k) can turn what’s meant as a benefit into a form of corporate poverty shaming. 


Action: Offer your employees the financial planning assistance employees want and need instead of just offering up an adviser to help choose a target date fund.


It's just you and your 401(k) balance. 


Being financially self sufficient is an amazing blessing but we weren’t created to do life alone and we need to stop idolizing financial freedom.  In cultures where retirement isn’t in “crisis” you see families and communities supporting those who can’t support themselves.  It’s a beautiful thing and these support mechanisms are still common in parts of the US and deserve recognition as a critical part of our economic infrastructure.  When the narrative shifts from self-sufficient individualism to include familial and community support, the challenge of retirement are far less daunting and much more realistic.  


Action Underscore the importance of family and community involvement as part of your retirement plan communications.


Not sure what messages your plan is sending? I'd love to help you figure it out and create a benefit plan that recognizes differences in your employees household financial circumstances and supports them in whatever they're going through.


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