We currenlty have less than a 50% contribution rate in our 401k plan. What changes can I made to increase participation?

[This message has been edited by Louis Gray (edited 02-21-2000).]

Surprisingly enough, the studies show that investment education is a more important factor in increasing participation in a Section 401(k) plan that providing for matching contributions.

Aside from improved investment eduction, the most increase in participation apparently comes from increasing the match at the lower levels --- say from 0 to 25%, or from 25% to 50% ---- rather than increasing the match beyond 50%.

Is the plan sponsor pitching the plan's match as effectively as it can? The best way I've seen to explain it is: "Where else can you get an immediate 50% return on your investment? That's a whole lot better than the 7% you'd get a year from now if you put the money in a CD down at the bank rather than contributing it to the 401(k) plan."

I'm kind a fan of the phrase, "Free Money". Have you tried that yet?

Another thing is a negative election - now the IRS has blessed negative elections (which provide for some minimum contribution unless the ee affirmatively elects otherwise) both for new and current ees.

Combining a negative election with no eligibility requirement would seem to be a good strategy because new ees never get used to having the withheld wages in their paychecks.

It seems like a good idea - natural ee inertia will probably result in a number of participants the plan wouldn't otherwise have.

How frequently is the match funded? I have seen participation increase when employers change from funding matching contributions on an annual basis to funding them each pay period. I guess that employees are more aware of the match when it hits their accounts each pay period.

Do employees direct their own investments? If not, allowing them to may increase participation.

What are the investments? Maybe a review is in order.

Who is the plan provider? Not only can name recognition help increase participation, but some providers will offer more assistance than others in answering questions like yours. (Any provider ought to give some help; after all, they stand to benefit from increased assets under management.)

On the employee education side, try to get some simple tools from your provider, such as retirement calculators. A simple, sliding card can show very quickly how much even a year's delay in participating can cost someone.

What kind of company? What kind of employees (i.e., blue collar/white collar; highly paid or low paid; education level)? These factors come into play.

What's the plan design? Are loans available? Matching? Profit-sharing? Hardship and in-service withdrawals?

I'd suggest talking to the employees and asking them what would encourage greater participation. Also, get the participants to promote the plan. Word of mouth works with retirement plans as well as it does with appliance repairs!