Despite the success of automatic plan features, retirement savings continue to worry many employees.
Nearly 60% say money is their leading cause of stress. And in a recent survey, 40% said achieving retirement security would take “a miracle.”
Those numbers come from the professional employer organization Tilson. And they indicate a problem hindering today’s workforce.
Retirement insecurity has personal and professional ramifications. On an individual level, retirement concerns increase stress and anxiety. The more acute the distress, the more it affects the mental and physical health of your employees. In turn, heightened and prolonged tension negatively impacts employee engagement, morale and productivity.
Barriers to retirement security
The current economic uncertainty, including layoffs and rumors of a recession, is causing some employees to prioritize immediate needs over long-term goals. Systemic challenges have also created barriers to retirement security.
Among the biggest obstacles facing employees are:
- Inflation outpacing wages
- Interest rate increases
- Lower salaries and savings among women and people of color
- High levels of personal debt
In addition, retirement plans aren’t the norm for everyone. Some of your employees, regardless of age or stage of career, might be connecting to a retirement plan for the first time. Less than 70% of employees in private industries have access to employer-led retirement benefits. And only 51% of them participate, according to data from the U.S. Bureau of Labor Statistics.
3 solutions to improve retirement readiness
Automatic features have proven their value for plan participation. Among plans managed by the investment firm Vanguard, those with automatic enrollment have a 93% participation rate. That number drops to 70% for plans featuring voluntary enrollment. Trends like these demonstrate why the SECURE 2.0 Act mandates automatic enrollment and automatic escalation features in most new 401(k) plans starting in 2025.
But plan participation doesn’t always indicate retirement readiness. Even with the benefit of automatic features, many employees feel unprepared for the future. The following solutions can help you support employees who have opted out of your plan or fallen behind in retirement savings.
- Use targeted communications.
- Reduce barriers through benefits.
- Provide financial education.
Sending the same message to all employees leads many to receive unhelpful information. If an employee is already participating in a plan and saving 15% of their salary, they don’t need a reminder to join the plan. Worse, blanket messaging increases the likelihood that employees will ignore future messages and miss vital information.
Instead, send targeted communications. Targeted communications are a powerful tool for increasing plan participation and engagement. For example, Microsoft raised its plan participation rate to 90% by targeting mailings to employees not enrolled in its 401(k) program. And it achieved that number without automatic enrollment, notes Employee Benefit News.
When crafting your communication strategy, include messaging aimed at employees who:
- Are not participating in your retirement plan
- Are not saving at a recommended percentage of their salary
- Are not saving to the allowable limits
- Are eligible for catch-up contributions after age 50
Send positive communications around relevant topics. Avoid shame or guilt in your messaging. Highlight the many possibilities in retirement and help employees visualize their goals. Use different formats to reach employees in the way they learn best. Examples include emails, text messages, newsletters, short graphics and visuals, webpages, videos, podcasts and in-person meetings.
Your employee benefits can further reduce barriers to retirement security. Often-cited obstacles to retirement savings include caregiving costs and student loans.
Voluntary benefits may help reduce caregiving expenses. For example, you could offer a support platform to help employees navigate needs related to pregnancy, child care, disability care and elder care.
For employees who are in school, education benefits under Section 127 allow you to provide up to $5,250 a year in tax-free educational assistance. And for those paying off student debt, the SECURE 2.0 Act lets you match qualified student loan payments with 401(k) account contributions (starting in 2024).
Provide Financial Education
Employees are craving financial wellness benefits, including education on basics like budgeting and debt management. Among employees taking loans from their retirement plans, a lack of emergency savings is a top factor. Only 45% of adults have the financial security to handle a $1,000 emergency expense, reports the human resources association SHRM. But retirement plan loans heighten the risk of income tax ramifications and a 10% penalty if employees can’t pay them back.
Aim financial education at employees at all levels of your organization and at all career stages, not just those nearing retirement. Cover the basics to build a foundation of debt reduction and good financial habits. Then create comfort with retirement savings and investment choices. Educate employees about Social Security and Medicare so they understand the importance of personal savings and health insurance in retirement. Connecting employees to financial professionals can further customize their education, planning and goals.
For more information
Promoting a more secure retirement is good for your employees and your organization. For more ideas, talk to your insurance broker or benefits adviser. They can help you examine communication strategies, caregiving benefits, financial education and other offerings to support employees’ retirement readiness.
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This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.
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