Education About Tax Treatment and Fees Could Boost 401(k) Participation

Capital One offers two 401(k) plan platforms for employers. The Spark 401k platform offers expenses of less than 1%, all exchange-traded funds (ETFs) and fiduciary services, while the Sharebuilder 401k solution is for larger plans and offers more dedicated services.

Recently, Capital One conducted a Spark 401k survey of 1,500 adults who are full-time employees ages 18 and older to gauge why employees are participating in their 401(k) plans and why some are not.

Stuart Robertson, president of Capital One Advisors 401k Services, told PLANADVISER that access to retirement plans continues to be an issue in the small business market. He said most small businesses think they can’t afford to offer a plan or that they have to provide a matching contribution on employee deferrals.

According to Robertson, 86% of employees whose companies offer a plan are satisfied with it, and 79% are confident their contribution levels will support them in retirement.

So, why are some employees not participating in their employer’s retirement plan, and what would spur them to do so? The Spark 401k survey found 40% of employees feel they do not make enough money to contribute, and 14% say it costs too much to participate.

Given these findings, it is not surprising that having a higher salary was the top reason respondents would consider participating in their 401(k) plan (49%). In addition, 37% of employees say they would reconsider participating if employers matched their deferrals, and 22% would reconsider if there were lower fees.

Opportunity for Education

Robertson said he sees an opportunity for education in the research findings. Asked what they think they are paying for investments in their 401(k) plan, 62% of employees said they do not know. This is more pronounced among female respondents: 77% of female employees whose companies offer a 401(k) have no idea what their 401(k) fees are compared to 53% of men.

Robertson added that the survey found 29% of employees indicated they believe they pay 5% or more in fees, and 51% said they have no idea what a fair rate for fees would be.

According to Robertson, most don’t understand that saving 10% to 15% of salary is necessary for a secure lifestyle in retirement. And for those survey respondents who said they would reconsider participating if they had a higher salary, education can help. “They may not be in a position to start saving, but knowing that savings are tax-deferred and it is not a dollar-for-dollar hit to their paycheck would be helpful,” he said.

Robertson said a glaring finding for him was that 58% of men are participating their company’s 401(k) plan, but only 25% of women are. However, he caveated that 49% of women work at company that does not offer a plan versus 29% of men.

Retirement income

Finally, another surprising finding was how many respondents still plan to rely on Social Security for income in retirement.

The survey found 50% of Millennials, 82% of Baby Boomers and 51% of Gen X plan to rely on Social Security as one of the means to fund their retirement.

“Given the issues with Social Security solvency, reliance by generation is dropping back, but still, the majority of folks plan to rely on it,” Robertson said.