Imposing a waiting period on employees before they can enroll in a 401(k) is common practice amongst companies, and perhaps one that should be re-evaluated.
While waiting periods may make sense for some companies (like those with high turnover rates), the majority of the time it only serves one — save money. Here are a few reasons why this archaic practice should be done away with.
Employees Are Losing Retirement Money
With Social Security benefits expected to be exhausted by 2037, the need to save for retirement is higher than ever before. Since waiting periods are quite literally stealing away time from employees to invest, individuals are potentially losing tens of thousands of dollars in their nest eggs.
Many Americans struggle with saving enough for retirement and rely on time to help them out, but without extra time on their side, they’re put into more of a disadvantage. The longer they go without saving, the less money they will have in retirement.
As an employer, imposing a waiting period is only hindering that opportunity.
Participation Rates May Increase
Another downside to waiting periods is that many individuals end up completely forgetting to enroll once the time comes around. This leads to lower participation rates, and lower participation rates can create reporting issues during non-discriminatory testing.
While there are some ways to increase participation rates, such as automatic enrollment, enrolling employees during their onboarding process is a much quicker way to increase rates. The longer your employee has to wait to be eligible to enroll, the less likely that they’re going to when the opportunity finally arises.
You’re Losing Top Talent
Offering a 401(k) is a great way to attract top talent – after all, it’s one of the most sought after benefits. However, the discovery of a waiting period may deflect a candidate to a more attractive offer from another company.
While offering other perks and benefits may seem like a good way to compensate for a waiting period, they don’t compare to the benefit of investing. And they certainly don’t make up for lost time investing.
Imposing a waiting period doesn’t guarantee a lower turnover rate, nor does it express to your employees that you’re committed to them in the long term. If high administrative costs are the reason you have a waiting period, then you’re with the wrong provider.
Bottom line – there is no beneficial reason to impose waiting periods, which means it’s time to do away with them. Contact us today to learn more about our $0-cost 401(k) plans.
Photo by Anna Shvets from Pexels.