By Edward “Ed” V. O’Neal, Vice President and Manager, Retirement PlansPrint This Post
It has become increasingly clear that there is a growing retirement savings gap in the U.S., with most workers not saving enough for retirement. Additionally, plan sponsors are beginning to understand the economic impact to their businesses, through potentially increased health care and disability claims, with employees who cannot retire due to lack of financial preparedness or adequate retirement savings.
Recent governmental statistics help illustrate the challenge. Per U.S. Bureau of Labor Statistics*, recent analysis shows that just 52% of employees covered by a private industry retirement plan (i.e. non-governmental) were participating in or contributing to the plan. Yet, there are some helpful steps plan sponsors can take to help their employees get on-track toward their financial and retirement goals. Some of the more popular items include:
- Initiating an auto enrollment feature within the retirement plan. This feature assumes that employees want to participate in the retirement plan and automatically enrolls them upon their employment, while also providing the opportunity for employees to opt out of the plan if they choose. Plans using this feature also include a default investment option for employees, with some plans choosing to include an auto escalation feature to increase employee deferral rates over time. A recent survey by Willis Towers Watson** revealed that auto features are becoming increasingly popular with plan sponsors to boost overall employee retirement savings rates.
- Adding a Roth feature to the plan. The same survey also indicated that including a Roth feature in the retirement plan can help in expanding the retirement savings options and success rates for employees.
- Streamlining retirement plan investment options. Although it’s important for plans to offer a diversified menu of investments allowing employees to create investment portfolios based on their unique needs and risk tolerance, too many investment options can lead to over analysis and often indecision for many employees.
- Providing educational outreach campaigns. Although this may seem like a simple concept, educational outreach has to be both focused and intentional to be effective. Successful educational programs include both broad financial topics such as budgeting, general investment concepts and retirement income; but also include targeted educational communication to key employee segments as needed, such as:
- Employees age 50 and over (i.e. pre-retirees)
- Employees age 35 and younger (i.e. millennials, etc.)
- Employees that are not well diversified in their retirement accounts
Given the growing importance that plan sponsors are placing on their employees being positioned and ready for retirement, there is still opportunity for plan sponsors to consider a more comprehensive approach for impacting and measuring the success of their retirement plans based on employee retirement readiness and outcomes; instead of the traditional success measures of participation rates.
Be sure to consult with your legal and/or tax advisor before adding any new features to your retirement plan; and your financial advisor to assist with reviewing the plan investment menu and employee educational outreach.
*U.S. Bureau of Labor Statistics (2019)
**Willis Towers Watson 2017 Defined Contribution Plan Survey