While it may seem your employees’ lack of retirement preparedness isn’t your issue, the fact is it’s impacting your bottom line.
Not every employee is well-prepared for retirement. A 2015
Schwartz Center for Economic Policy Analysis study revealed that 68% of the US
work-age population (25-64) did not participate in employer-sponsored
retirement plans, and the reasons are many – their employer didn’t offer one,
they weren’t working, or they simply chose not to participate.
That lack of enthusiasm for retirement savings continues
today. In CDC and GAO reporting, 52% of households have a retirement account.
While that sounds promising, the reports note that the average household
retirement account had $60,000 in 2016. Breaking it down further, high-income
households had a median $403,000 in retirement savings; middle-income
households, a mere $25,000.
For employers, that should be a big deal. Employees’
financial well-being, including being adequately prepared for retirement, is a
key factor in workforce motivation, productivity, and decreased health benefit
costs, says a study conducted by The International Foundation of Employee
Benefit Plans. In the study, 4 out of 5 employers cited an employee’s financial
issues as somewhat, very, or extremely impactful on job performance. In fact,
76% of employers say stress impacts performance, and 60% add that their
employees are unable to focus at work – 34% say that absenteeism and tardiness
are attributed to financial problems.
Luckily, employers and plan sponsors are showing growing concern for the financial health of their workforce. The Willis report reveals that 39% of today’s employers and plan sponsors view retirement readiness as a threat to the business; 44% believe it will be a risk for them two years from now.
Yet plan sponsors are lacking in their approach to ensuring
such readiness. According to Willis Towers Watson, just 19% of those surveyed
say they monitor retirement readiness of their employees each quarter or more
frequently; 38% monitor on an annual basis, and 24% monitor retirement
readiness on an ad hoc basis.
Beyond productivity and motivation, employees who are not
retirement ready can often cause an unintended consequence simply by working
longer – promotions and departmental moves sought by younger employees don’t
happen. The result: younger workers leave for better opportunities.
For plan sponsors looking to change that dynamic, there are
some strategies that can help improve retirement readiness and allow people to
Educate on catch-up contributions.
For the older worker demographic, often the more compelling
reason or remaining on the job is the lack of adequate retirement income. Plan
sponsors can help older workers improve their retirement savings by educating
them on the catch-up contributions that allow workers aged 50 and older to add
additional contributions above the annual plan limit to a qualified retirement
Introduce them to Saver’s Credits.
For certain income brackets, the IRS Saver’s Credit gives
employees investing in a retirement plan a percentage-based credit for their
eligible retirement contributions. The credit can be worth up to $2,000 per
person per year.
Note: the Saver’s Credit is available to qualified people
aged 18 or older who cannot be claimed on someone else’s tax return, and who
are not full-time students.
Create targeted engagement/communication processes.
While the older worker is indeed a focus, plan sponsors
should not overlook the need to communicate with every workplace demographic.
Yet all-encompassing communications of the one-size-fits-all variety rarely fit
Instead, plan sponsors should identify the needs within each
employee age demographic and create content that appeals to that particular
group. Keeping in mind employee behaviors, their current engagement level, and
their decision-making patterns, plan sponsors can develop better communications
that are targeted to that group, which improves retirement saving outcomes.
Implement an ongoing financial wellness program.
While plan sponsors are communicating with their employees
regarding healthier retirement savings, they can also help them learn how to
create a budget, spend more appropriately, and close their savings gaps from
both a retirement and a general savings perspective.
Your employee’s lack of retirement readiness may already be impacting their performance. Giving employees the tools and resources to help them better manage their finances, plan sponsors can become the missing link in helping drive better retirement planning outcomes, which drives better work performance and motivation.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.get xpress proposal