Use the fee disclosure as an opportunity for retirement education

Experts at Financial Finesse say they repeatedly find that less than 20 percent (17 percent last year) of employees are confident they're on track to retire. This is a huge issue as you probably know for employers and they can use the fee disclosure to turn something of a hassle into a positive– similar to how the credit card act raised awareness, fee disclosure can do the same thing with retirement preparedness. Benefits of the plan to communicate to employees:

Save in taxes – the tax savings from the 401(k) outweigh fees the employees may be paying. For the pre-tax 401k, employees reduce their current taxes from 10 percent to 35 percent depending on their federal tax bracket and there may be state income tax savings on top of that. They can defer taxes on all of their investment earnings until withdrawn, which can add up to thousands of dollars per year. If they invest in a Roth 401(k), the earnings are the highlight and can be withdrawn completely tax free at retirement.
Get free money toward retirement – This is obviously unheard of in any other savings vehicle! Companies that have a dollar for dollar match are essentially providing a 100 percent return to the investment and for a fifty cent match a guaranteed 50 percent return so this help(s employees significantly.
Can retire earlier by using a company 401(k) – the IRS allows employees retiring from their company to withdraw funds from their 401(k) at age 55. Investors in Individual Retirement Accounts (IRAs), both traditional and Roth, have to wait until 59 ½ years old (or have special circumstances) to avoid an early withdrawal penalty of 10 percent for federal taxes.
Can contribute more than they could in an IRA- With an IRA, the employee can only contribute $5,000 per year ($6,000 if they are over 50). With a 401(k) plan they can contribute more.
Can save before they even see their paycheck – by using this, employees' savings is "out of sight – out of mind" so they can build their savings without the temptation to tap it.

Next: Show employees how your plan fees compare to the industry average

Instant Insights /

Fee disclosure communication guide

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