Six Ways to Improve 401(k) Plans

It's largely agreed that 401(k) plans are incredibly valuable in attracting and retaining top talent, improving a company's corporate image and contributing to a company's overall long-term financial health. But when the economy crashed, all bets were off.

Thankfully, employees will be pleased to know that most employers have no intention of eliminating 401(k) plans from their benefit offerings.

In April 2009, CFO Research Services, a unit of CFO Publishing Corp., in conjunction with Charles Schwab, commissioned i4cp to assist them in gaining insights from HR executives regarding how those executives are addressing their 401(k) plans given the state of the economy. We surveyed our member group of HR executives from firms with over $100 million in revenue, and CFO went on to publish a report titled Getting Retirement Savings Back on Track: Employer Views on the 401(k) and Financial Education in the Workplace. This new report is available as a free download on CFO Magazine's website.

The report reveals that both finance and HR executives feel that it's still important to have 401(k) plans in order to retain a productive workforce. Though employees' confidence in their investments has taken a hit, most workers have shown an interest in grinding it out, with few employers seeing any major decline in participation. At the same time, nearly half (48%) reported that some employees have lowered their contributions, and 43% said that they have seen an increase in the number of employees taking out hardship loans from their 401(k) plans.

On the employer side, most respondents said that their current 401(k) system works, though some modifications could be made to improve matters. They also considered an employer match to the 401(k) plan an important component to maintain or, in some cases, reinstate as soon as possible. More than any other element, employers expressed frustration with not being able to provide as much investment advice to employees as they would like - both for 401(k) plans and for investment opportunities in general. Employers also expressed interest in other ideas that they believed would benefit both employees and companies:

1. Make 401(k) investment advice more available in the workplace.
2. Raise the ceiling on maximum voluntary contributions.
3. Adjust mandatory withdrawal rules for older employees.
4. Relax the limits on employee borrowing.
5. Include fixed-income and guaranteed-rate options.
6. Provide more investment choices.

Respondents were less keen on providing a government-run guaranteed plan, saying that it was beneficial to neither the company nor its employees. Government intrusion in general was seen as having a negative effect.

Ultimately, while companies have attempted to cut costs across the board, the executives interviewed for this survey overwhelmingly agreed that it's dangerous to mess with 401(k) plans. Not only will tampering with such plans make it harder to attract and retain top talent once the market expands, but it would have a negative impact on employee productivity and be detrimental to the long-term financial health of their organizations.