Here's a confession: I've never had a 401k.

Why? Well, when I got my first professional job out of grad school, I had a lot of debt. My then fiance, now husband, had a lot of debt, and we wanted to pay off that debt. So, we opted to forgo contributing to 401ks in order to pay down that debt.

Here's the stupid part: As a grad student, I earned $12,000 a year. Not bad for a grad student in 1998, but obviously not enough to live a lavish lifestyle. My first professional job paid $40,000. What part of me didn't think that was more than enough to live on when my rent was $435 a month? The part of me that was financially responsible and did really want to get out of debt and the part of me that thought "Woo-hoo! Real money!"

So, in 2003 both my husband and I had paid off all our debt, with the exception of our mortgage, so the first thing I did was march right into HR and say, "I'd like to sign up for that  401k right now!" Of course not. The inertia was too great and I never got around to it, even though by 2003 I was earning almost double my starting salary. Fortunately, my husband changed jobs right about then and did sign up for the 401k at his new company. Because I didn't change jobs, I just never got around to it.

I've since rectified my lack of retirement savings, but I not only lost out on years of interest and earnings, I lost out on the match offered by my company. I threw away free money.

I'm not the only one who did this. But, even if I had, it wouldn't have solved all my retirement needs. The Wall Street Journal just ran this article The Champions of the 401(k) Lament the Revolution They Started, that laments of failings of the program they started.

While they talk about the retirement dilemmas caused by accounts that rise and fall with the markets, rather than defined benefit accounts (Pensions) that pay out guaranteed amounts upon retirement, you need to remember that pension accounts also rise and fall with the market--it's just that the current crop of retirees aren't punished. You can see examples of underfunded pensions all over, but especially in government pensions. California, for instance, has $241.3 BILLION in unfunded pension liabilities as of 2014. No matter what HR departments have promised, if the money isn't there to pay out a defined benefit, it won't be there.

So, how can your small business solve the retirement dilemma? And, in fact, your business wants to solve this, as having retirement accounts gives your employees peace of mind and reduces stress, which in turn, makes them better able to focus on their work.

I asked my two favorite financial gurus for their help: Jonathan Lachowitz and Joe Saul-Sehy. Jonathan runs White Lighthouse, an investment management firm (and, for full disclosure, my financial advisor), and Joe is a retired financial planner who now runs the top-rated podcast, Stacking Benjamins (again, for full disclosure, I'm a frequent, but unpaid, guest on this podcast).

Jonathan says:

As an employer setting up a retirement plan such as a 401k, giving a good mix of low cost index ETFs (15-20) from providers such as Vanguard and iShares, and giving that extra incentive of an employer match can help to create good habits. Automatic enrollment rather than requiring employees to opt in has proven to be helpful too. For employers who want to go further; providing employees with access to a financial planner, even for 1-2 hours a year, can pay big benefits.

In addition to putting the tools for retirement savings in place, business owners and executives can play a role in promoting good financial habits to their employees in a variety of ways: regular communications to employees about the benefits of retirement savings plans, providing learning opportunities in personal finance through courses, seminars and on-line, making books and magazines on personal finance available on-site as well as leading by example and communicating to employees at a high level how they are actively saving towards retirement too.

Automatic enrollment would have probably encouraged me to start saving when I got that first job, as opting out rather than opting in always brings more participants. Additionally, his point of having leadership set a good example can have a tremendous influence on your employees.

Joe says:

Retirement planning is a combination of finding a good provider and education. On the provider side, some cool FinTech companies are making it easier. For example, ForUsAll is bringing low fee plans to small and medium sized companies. Blooom can help employees choose better options easily.

Of the two, though, education is far more important. People don't understand their options. See if your provider can offer financial planning lunch and learn sessions. Talk about your benefits whoever you have staff meetings. Work to make your plan opt-out instead of opt-in. By making retirement savings easier, your employees won't worry about money while on the job.

These things are easy for your company to do, and will make a tremendous difference in preparing your employees--and yourself--for retirement.

Published on: Jan 5, 2017