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Effects of Compound Interest in 401k

Effects of Compound Interest in 401k 

Effects of Compound Interest in qualified retirement plans are not easily understood by all 401k plan eligible employees.  If employees do understand the effects of compound interest they will normally participate in the qualified retirement plan.  At the conclusion of a Plan Sponsor University (TPSU) Fiduciary Education Program held at a Hawaii Pacific University in Honolulu, Hawaii, TPSU Founder and CEO, Fred Barstein spoke with Lori, a TPSU Program attendee. As Manager of Payroll and Benefits Administration, Lori has the task of communicating the benefits of the 401k plan throughout her organization.  Lori shares with Fred Barstein, the strategy and various methods for communicating the Retirement benefit to eligible employees at her 24 employee organization.  Learn how Lori improved her company’s employee communication efforts by viewing this video.

Full Transcript Here

Fred Barstein:
Fred Barstein with 401kTV in beautiful Honolulu, where we just completed our TPSU program, and I’m here with Laurie.

Lori:
Yes.

Fred Barstein:
Welcome, Laurie.

Lori:
Thank you.

Fred Barstein:
Okay if we ask you a few questions?

Lori:
Yes.

Fred Barstein:
Okay, why don’t you introduce yourself? How many of them employees, your role at the company?

Lori:
My name is Lori, and we have 24 employees, and we’re a utility company. And then, I do payroll as well as assist with HR, and open enrollment and benefits administration.

Fred Barstein:
So you wear a lot of hats.

Lori:
Yes, we’re a small company. I do.

Fred Barstein:
Okay, so today you talked about ways to get younger people to save for retirement. What are some of the things that you do with your employees?

Lori:
Well, we had our advisor come in, and they had given different scenarios to them, and how if they invest now then with compounding interest they could then eventually be a millionaire by the time they’re ready to retire.

Fred Barstein:
Right.

Lori:
So that’s really encouraging to see that.

Fred Barstein:
Do you show them actual scenarios on that?

Lori:
Yes, there are charts and different tables that will show how much, if they were to invest now that they can get later.

Fred Barstein:
Right. Is that online? Or, is it just in print?

Lori:
It’s usually, the presentations during our open enrollment, and also given out to them.

Fred Barstein:
Right. And so when people see that, what kind of effect does that have on the people?

Lori:
They’re just surprised that it could get that much, and-

Fred Barstein:
A little amount.

Lori:
Yes, that something small now would get them a lot later.

Fred Barstein:
Because they just think, “Oh, it’s too hard, and I just won’t save, and I’ll just spend the money.” When they see that, they might do that. So, that’s great. A couple of things that you learned today, that you may want to try to take back to your company?

Lori:
Oh, mostly the auto-enrollment. Look into that to get more participation. And even auto re-enrollment to get those that have been with our company for a while that isn’t contributing to start.

Fred Barstein:
To start contributing.

Lori:
Yes. [crosstalk 00:02:03].

Fred Barstein:
Very good. Well good. Well, thanks for your time today. I know that you’re rushing off. And thank you for watching 401kTV.

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