Tchotchke Choice?

Sponsored by Allianz Life Insurance Company of North America

One of the optional provisions of SECURE 2.0 allows plan sponsors to provide small financial incentives to employees to encourage retirement plan participation. One provider recently announced a “cash back” program to encourage participation. This made us wonder what plan sponsors think about the use of incentives to encourage plan participation, so we asked in this week’s QOTW.  

Fewer than two percent of organizations have, or will this year, offer employees an incentive to participate in the plan while 68 percent definitely will not, and 17 percent are considering it. For those stating they will not take advantage of this provision, many cite either an already high participation rate or the sense that the match they offer is the incentive enough as reasons. Though most are not using incentives, respondents had a lot to say about this topic – see below.  

Are offering or considering:

• Cash incentives are taxable so thinking of things that are not such as T-shirt, cups etc. The cash incentive when taxed technically decreases someone’s normal net check, so if someone is living paycheck to paycheck their net check is reduced because of the taxation on the gift. In addition, the government does not define de minimis.
• Great idea
• Hello...I love the idea!!  I need to research, but if possible I would expand the gift to all participants...we want pride in our plan, so the more people thinking about it, the better!
• If employers can afford to provide an incentive beyond the match, it can be a good thing.  The purpose of the plan is to help Employee's prepare financially and anything that motivates the Employee to do so is a positive.
• The match percentage is what should be the incentive for new plan participants.
• This doesn't seem like a de minimis amount (3%) - under the Secure Act 2.0 provisions, we're being told that means like a $50 gift card. We are considering a small gift, but probably in the form of a quarterly raffle. Making it a game may make some participate. It would be a very small investment for a bit of fun. Otherwise, the incentive to participate in the plan is the *free money* they get in the way of a match.
• This is challenging because we have a 4% match so that incentive is not working and how do we justify adding more $ to get them in the program!
• We have a very generous 401K plan and we don't provide a cash incentive to new plan participants.  We might do some education on what a Roth is and use incentives for that.
• We have auto enrollment already - and have great participation.  Maybe we could use a small incentive to get employees to increase their deferral amount?
• We use something similar for our Wellness program, so we may just incorporate an additional "financial participation" incentive there.  That said, we currently have a large 401k participation, so adding an additional incentive may not provide us much bang for the buck.
• We would consider it to get participants to do more for retirement savings.
• we hope to have this "perk" up and running the beginning of the new year for all who sign up or join.  we have also considered on extending to people who quit contributing to the plan in the last few years because of COVID19.
• Small incentives I think are useful. Of course, the employer has to weigh the cost of the incentives against the effectiveness they observe over a period of time.  If it doesn't have the desired results, I'd rather spend the money for participants in a way that does have impact.

Not offering or considering:

• As a consulting firm, our employees know the value of the 401(k) plan in their overall compensation and there is never any hesitation for them to join, especially at the salaries they are making.
• As a non-for-profit employer, there will likely be challenges to providing cash incentives.
• Because the generous match and an opportunity to provide themselves a dignified retirement aren't incentive enough?
• Currently we are not adding any additional benefits. I think this is a great option for financial wellness and would like to see how other organizations roll it out.
• I don't know how they can afford to do so without increasing the fees they charge...which are typically passed along to all participants in a plan.  Lawsuit waiting to happen, I am sure Schlichter is watching with interest.  I think it is fine for an employer to do this and pay for it, not sure $250 provides enough motivation.
• I generally think this is a bad idea.  An employer should offer a decent match formula and participant education so it's clear that it is in the best interest of employees to participate in the plan.  Small incentives are gimmicky most of the time and do not belong in a properly managed retirement plan.
• I think it's a great idea for small companies or those with low participation, but we are a large government plan, so financial incentives will not be considered.
• If that is what is needed to get employees involved in their retirement plan, go for it. We already have high (95%+) participation without doing something like this.
• If the company has a good plan design and a sound 401K communication program, a cash incentive is not need. Our plan has over 95% participation and the employees who are not participating are long term employees who choose not to. Our plan has employer match and new employees can defer upon hire. The match vests immediately, there is a Roth feature as well as in-service distributions. Our new hires sign up for the plan usually upon hire since there is no waiting period.
• Incentives make sense if employees are reluctant to participate, but in the long run matching deferrals seems like a better strategy for employees.
• It is my understanding that the cash incentives will be taxable to the employee.
• Most employers already offer a match, but if this is the TPA provider paying the cash back at no cost to the employer/plan sponsor why not? Also in favor of this from the announcement: "The announcement is the latest in what the company said is “a growing list of industry-first moves,” including the elimination of transaction fees."
• Most employers are already contributing with employer matching, that should be enough.
• No plans for any incentive changes.
• Not a big factor for us - we have very high participation - I do not see this impacting our current practices.
• Not necessary as we already have 95% participation.
• Our participation rate is already high.
• Our participation rate is over 95% so we will not consider adding an incentive. We do think it is a good idea for plans seeking to increase their participation rate.
• Overall I think there needs to be a balance with incentives to avoid double hit on people who cannot participate due to income/personal finances.   while the incentive can be attractive short term, lower income people sometimes cannot afford to change their payroll. So education would be critical to help them understand how to benefit from the incentive.
• Since gift cards are taxable, we have moved away from providing them to our employees as incentives.  If there were a de minimus amount we could gift tax exempt, we would be more likely to incorporate.
• Since we're government, incentives are hard, but I’ve contemplated asking our Governor if she would grant an hour of leave for those who enroll. (our plan is voluntary)
• There are too many administrative and compliance concerns with adding cash incentives to a 401k account. We already have a great match and vesting schedule, and we do not believe a small incentive will encourage participation.
• Unnecessary based on our demographic (a professional services firm). We have 95% participation rate.
• We are a small firm and our participation rate is 100% so there is no need for financial incentives.
• We believe there should be encouragement but also individual responsibility to save for the long term. A cash incentive is a short term view on motivating employees to save.
• We don't want to use any incentives to increase participation.  We have automatic enrollment and that has increased the participation % for our company to 80%.
• We have a fairly high average pay with high participation rates so we do not see a need to incentivize participation in the plan.
• We have auto enrollment and auto escalation and employees will receive the employer match.  We are not interested in providing something extra to ask people to not opt out of the 401(k).  If this is referring to a non-elective employer contribution which it sounds that way from the article, we had that and we discontinued for new participants.
• We have auto enrollment with minimal opt-out so there is no need to add an incentive. An attractive match is also a good incentive already.
• We have auto enrollment, so our participation rate is close to 90%.  We are going to focus more on incentives towards ESA's.
• We have automatically enrolled our participants since 2011, we have a 96% participation rate. It works!
• We have good participation rates already. An incentive is not needed.
• We have high participation in our plan so we would not consider this.  I don’t think additional incentives are necessary if your plan is structured in a way that benefits your employees
• We have over 800 employees, so we are not considering adding this now.
• We will not add.  Participation is at 93%

Unsure:

• I am unsure how to offer a one-time financial incentive to promote participation without risking participants just dropping out after receiving the incentive. I think the only way we will consider offering such an incentive is upon a participation anniversary of some sort when their balance would serve as incentive for continuing their participation. Even then, as a large employer it will be hard for us to know who has already received the incentive to prevent double-dipping. Conversations around this are ongoing, but I don't see us taking advantage of this anytime soon.
• I like the idea and would like to see how others are going to structure it.
• I think it is a good idea and motivates & rewards individuals to save for retirement.
• Interesting idea but would like to see results of this incentive as to how many participated and if there was any confusion among participants between this incentive and a company match.
• Of course, I am speaking for myself, but I feel a better employer match would be more enticing to an employee.
• Our plan percentage is presently at over 97% so don't see the need.
• too early to assess
• We have tried small financial incentives to engage employees in our wellness plan but it didn't move the needle. Think auto enrollment is the tool that is the path of least resistance where employees don't have do to anything unless they don't want to participate...and at that point they have to take action to make that decision.
• We've allocated profit sharing payouts to our plan in recent years with no impact. The four participants have not contributed to their plans since.