HR groups continue to try to find ways to help employees make the right decisions without doing it for them. The focus over the last several years on auto-enrollment, auto-increase and qualified default options has helped get employees engaged in retirement plans. Participants have embraced these plan features and have started participating in the plans because plan sponsors have made it easy for them to do so. Employees, however, have a hard time keeping focus on a benefit they may not use for 30 years, leading them to think of ways to use the money now. Plan sponsors need to be vigilant about keeping employees focused on the end goal.
Some participants use their 401(k) account as an emergency fund. Taking loans from a plan leads participants to inevitably contribute less in the long run. They will end up with less retirement income and thus need to work longer. Hardship withdrawals remove savings that cannot be repaid. This impacts the future account balance for employees. Impulsive behavior, like trying to time the market, can also have a severe impact on investment performance and the account balance at retirement.
