Sprucing Up the 401(k)

Less-than-stellar participation rates can also lead to second thoughts about 401(k) education efforts. While an 80 percent rate at Arrow Electronics appears decent, the participants are heavily concentrated among white-collar workers, says Paul Reilly, CFO of the Melville, New York–based distributor of electronic components and computer products. To gain more-equitable participation, Arrow sends fund managers and its benefits teams to its distribution centers so that hourly employees can learn directly about 401(k) investing. "The biggest challenge we have is educating people in our hourly employee base who don't have as much disposable income," the finance chief says.

Of course, no list of best practices would be complete without a reminder to measure everything. The best metrics underlying 401(k)s are straightforward: the percentage of participants, the size of their accounts, and the growth potential of their investments. Practically all the features in today's top-performing plans are aimed at driving toward a 100 percent employee participation rate and a rate of income replacement for employees at retirement in the range of 70 to 85 percent, according to CFOs and benefits experts.

David M. Katz is deputy editor of CFO.com.

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