Strategies to encourage Millennials to engage inÂ company 401(k) plans
By R. Paul Herman and Joy Pettirossi-Poland
What are the secrets to higher employee engagement,Â especially for Millennials and Generation X-ers?
âMillennials want more from business than might haveÂ been the case 50, 20, or even 10 years ago,â says CEOÂ of consulting fi rm Deloitte Global, Barry Salzberg.Â Integrating purpose with profit is a âdifferent and betterÂ way of operating in the 21st centuryâ that is essential toÂ motivating Millennials.
The majority of organizations offer a 401(k) program toÂ their employees. While 87 percent of 88 million peopleÂ with access to a plan save an average of 6.8 percent ofÂ their pay, and employers who match contribute anotherÂ 4.5 percent finds the American Benefits Council, mostÂ Millennials do not participate in their 401(k) plan.Â According to Scottrade, the national average for 401(k)Â participation among Millennials is 21 percent.
âOur mostly Millennial workforce made it very clear thatÂ they werenât going to invest in a 401(k) plan that didnâtÂ offer transparency into the underlying sustainabilityÂ and impact of the companies in their mutual fundÂ choices,â says Burke Pemberton, partner and controllerÂ at Environmental Building Strategies. EBSâs 401(k)Â participation rates two years ago among its MillennialÂ populationâthe majority of the fi rmâs talentâwas veryÂ low at 10 percent, half the national average for that ageÂ group.
Pemberton engaged financial advisors, Ian McLeod andÂ Jim Frazin at Communitas Financial Planning in order toÂ show the embedded sustainability of the 30 mutual-fundÂ choices that EBS offered. HIPâs sustainability ratingsÂ measured the purpose and net impact on society forÂ Millennials in EBSâs own 401(k) plan. This helped boostÂ EBSâs Millennial participation in the first year of rollout toÂ 91 percent which is 4.3 times the national average. TodayÂ it is 100 percent. Contribution rates by EBSâs MillennialsÂ jumped from 2.1 percent of income, to 5.4 in year one ofÂ the implementation. Now, itâs a whopping 8.8 percent,Â almost 50 percent above the Millennial national averageÂ of 5.9 percent, even without matching funds from EBS.
Now, EBS employees are looking for portfolios thatÂ are fossil-free, water-efficient, and women focused, allÂ that can benefit society as well as their portfolios. EBSâsÂ financial advisor Communitas switched 3(38) investmentÂ managers to QBOX Fiduciary Solutions LLC to be ableÂ to offer these custom impact-themed portfolios thatÂ meet fiduciary requirements. Greg Moerchin, QBOXâsÂ president, sees this as the next wave of 21st centuryÂ retirement plan solutions. He says, âMillennials wantÂ to build a better world via their portfolios, and theÂ technology and systems are here today to empower themÂ and their 401(k) plan sponsors to achieve impact in theirÂ investing.â
Unlocking employee engagement requires connectingÂ the underlying purpose of the firm to solving human,Â social, and environmental problems. Millennials, women,Â engineers, and entrepreneurial employees are inspiredÂ by using business as a force for good. They also wantÂ to invest their for-profit portfolios in this sustainableÂ manner.
Sixty-nine percent of employees report wanting to doÂ good with their investing, but 62 percent of employeesÂ donât understand how their 401(k) portfolios canÂ do that, according to research from the More ValueÂ and Profit (MVP) program. Sixty-eight percent ofÂ employees surveyed by MVP seek to learn the linksÂ among sustainability and their 401(k) planâs futureÂ risk and performance. Perhaps itâs because 56 percentÂ of employees are interested in seeing anÂ investmentâs impact on society quantifiedÂ alongside the financial performance data.Â This way they can create portfolios that seekÂ higher impact and lower risk and produce moreÂ resilient, stronger returns.
The bottom line: half of employees (52 percent)Â report that seeing this impact quantified wouldÂ inspire them to contribute more to their 401(k)Â plans.
âIf all 401(k) plans offered impact ratingsÂ on funds and education on sustainability,Â businesses could see multiple compellingÂ benefits to the bottom line and society,â saysÂ Michael L. Balasco of Meridien Financial Group.Â âFirst, spur higher rates of product innovationÂ that can solve problems in our local communitiesÂ and worldwide, which can also grow the top lineÂ revenue and bottom line profits of companies.Â Second, produce the confidence that retirementÂ plans are strong, safe vehicles for future savingÂ and investing. Third, engage and attract topÂ talent of all ages, but especially Millennials,Â which is a constant source of challenge for theÂ business owners we serve.â
A 401(k) program can be used as a differentiatorÂ and a competitive edge in attracting, hiring,Â engaging and retaining talent. By adding a sustainabilityÂ lens through surveys, education, and mutual fund ratingsÂ that explain how these fund choices can contribute a netÂ positive benefit to society, organizations can energizeÂ employee passion which can lead to higher productivityÂ and profitablity.