OCEAN CITY – While some larger companies are suspending their matching
contributions to meet expenses, many small to midsize businesses are
introducing 401(k) retirement plans for their employees — even during
this sluggish economy. In fact, initiating a plan now is a sound business idea.
"I’ve seen strong interest among smaller employers in offering
401(k)s, especially when they realize their part in helping people save money
and achieve retirement success," says Kevin Crain, Managing Director, Plan
Participant Solutions, for Bank of America Merrill Lynch. "It’s
because they have to: The employees they want from larger competitors expect a
401(k) or other savings plan benefit."
The demand is real. Employees and job-seekers ranked access to a workplace
retirement plan very highly in a survey by the Investment Company Institute, a
mutual fund industry trade group. As many as 43% of 1,575 respondents with
defined contribution plans said they probably wouldn’t save for retirement if
not for the opportunity to do so at work. And despite unstable market
conditions in the short term, the value of long-term saving remains important.
"If you believe the markets will recover and turn upward, investing
now looks like a smart choice," says Crain.
Plan design can vary widely based on the needs of your company. Some
questions to consider include: Do you want to minimize the administrative
burden on your staff? What are the ages of your employees? How much flexibility
do you want in the investment range you offer?
These are just some of the many considerations, notes Michele Wickles,
Managing Director, Business Retirement and Corporate Market Benefits, Bank of
America Merrill Lynch.
"All these variables shape the choices you make as a plan
sponsor." Of course, cost remains a constant concern. "It’s always
important to make sure your plan’s investment expenses are competitive, but you
may also be able to structure plan investments so that they help cover
administrative costs," Crain points out.
Once you’ve set up a plan, you may find the next task surprising: getting
employees enrolled. As much as employees recognize the importance of saving for
retirement and want to do so through the workplace, they can still succumb to
"Holding workplace seminars with your financial advisor can play a
crucial role in motivating employees," Wickles notes.
Still, automatic enrollment is perhaps the most effective tool for
overcoming inertia and ensuring that employees draw the greatest benefit from a
"It’s easy for people to get so busy with their everyday duties that
enrolling once they become eligible can easily fall by the wayside," Crain
says. "Automatic enrollment removes that barrier. And adding automatic
increases helps people save even more effectively by putting away more of their
salary each year until they’ve reached the maximum. It’s surprising, but people
stay with it."
Maybe this is not so surprising, given the current market.
"The need to plan for retirement doesn’t go away when the economy
turns downward," Wickles says. "If anything, what’s happening today
heightens our concerns. Having a retirement plan is really a necessity for
Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)