Strategies to encourage Millennials to engage in company 401(k) plans
By R. Paul Herman and Joy Pettirossi-Poland
What are the secrets to higher employee engagement, especially for Millennials and Generation X-ers?
“Millennials want more from business than might have been the case 50, 20, or even 10 years ago,” says CEO of consulting fi rm Deloitte Global, Barry Salzberg. Integrating purpose with profit is a “different and better way of operating in the 21st century” that is essential to motivating Millennials.
The majority of organizations offer a 401(k) program to their employees. While 87 percent of 88 million people with access to a plan save an average of 6.8 percent of their pay, and employers who match contribute another 4.5 percent finds the American Benefits Council, most Millennials do not participate in their 401(k) plan. According to Scottrade, the national average for 401(k) participation among Millennials is 21 percent.
“Our mostly Millennial workforce made it very clear that they weren’t going to invest in a 401(k) plan that didn’t offer transparency into the underlying sustainability and impact of the companies in their mutual fund choices,” says Burke Pemberton, partner and controller at Environmental Building Strategies. EBS’s 401(k) participation rates two years ago among its Millennial population—the majority of the fi rm’s talent—was very low at 10 percent, half the national average for that age group.
Pemberton engaged financial advisors, Ian McLeod and Jim Frazin at Communitas Financial Planning in order to show the embedded sustainability of the 30 mutual-fund choices that EBS offered. HIP’s sustainability ratings measured the purpose and net impact on society for Millennials in EBS’s own 401(k) plan. This helped boost EBS’s Millennial participation in the first year of rollout to 91 percent which is 4.3 times the national average. Today it is 100 percent. Contribution rates by EBS’s Millennials jumped from 2.1 percent of income, to 5.4 in year one of the implementation. Now, it’s a whopping 8.8 percent, almost 50 percent above the Millennial national average of 5.9 percent, even without matching funds from EBS.
Now, EBS employees are looking for portfolios that are fossil-free, water-efficient, and women focused, all that can benefit society as well as their portfolios. EBS’s financial advisor Communitas switched 3(38) investment managers to QBOX Fiduciary Solutions LLC to be able to offer these custom impact-themed portfolios that meet fiduciary requirements. Greg Moerchin, QBOX’s president, sees this as the next wave of 21st century retirement plan solutions. He says, “Millennials want to build a better world via their portfolios, and the technology and systems are here today to empower them and their 401(k) plan sponsors to achieve impact in their investing.”
Unlocking employee engagement requires connecting the underlying purpose of the firm to solving human, social, and environmental problems. Millennials, women, engineers, and entrepreneurial employees are inspired by using business as a force for good. They also want to invest their for-profit portfolios in this sustainable manner.
Sixty-nine percent of employees report wanting to do good with their investing, but 62 percent of employees don’t understand how their 401(k) portfolios can do that, according to research from the More Value and Profit (MVP) program. Sixty-eight percent of employees surveyed by MVP seek to learn the links among sustainability and their 401(k) plan’s future risk and performance. Perhaps it’s because 56 percent of employees are interested in seeing an investment’s impact on society quantified alongside the financial performance data. This way they can create portfolios that seek higher impact and lower risk and produce more resilient, stronger returns.
The bottom line: half of employees (52 percent) report that seeing this impact quantified would inspire them to contribute more to their 401(k) plans.
“If all 401(k) plans offered impact ratings on funds and education on sustainability, businesses could see multiple compelling benefits to the bottom line and society,” says Michael L. Balasco of Meridien Financial Group. “First, spur higher rates of product innovation that can solve problems in our local communities and worldwide, which can also grow the top line revenue and bottom line profits of companies. Second, produce the confidence that retirement plans are strong, safe vehicles for future saving and investing. Third, engage and attract top talent of all ages, but especially Millennials, which is a constant source of challenge for the business owners we serve.”
A 401(k) program can be used as a differentiator and a competitive edge in attracting, hiring, engaging and retaining talent. By adding a sustainability lens through surveys, education, and mutual fund ratings that explain how these fund choices can contribute a net positive benefit to society, organizations can energize employee passion which can lead to higher productivity and profitablity.