1. Employer Matching Contributions
Providing employer matching contributions for employees will help encourage employees to save some of their own money for retirement by giving them the incentive to save at least enough to get the “free money” from their employer. Once employees are receiving the employer match, they are less likely to decrease their contributions so not to miss out on that “free money”. This is providing the opportunity for employees to save more for retirement.2. Automatic Enrollment
An automatic enrollment provision can help employees get off to the right start by “making it easy” so they don’t have to lift a finger. Human nature is to take the easy way out and just not act on it, if we don’t fully understand it. By providing an automatic enrollment provision, the employee is defaulted into a pre-determined deferral percentage (e.g., 5%) unless the employee would want to opt out. In T. Rowe Prices’ white paper called Automatic Enrollment, Reenrollment, and Retirement Outcomes, Joshua Dietch wrote “T. Rowe Price analysis of participants who were automatically enrolled in employers’ plans in 2021 reveals that less than 6% opted out”. Understanding human nature and designing a plan to complement it may set up employees for better retirement savings from the beginning than if they never signed up.3. Automatic Escalation/Increase
Typically, with the automatic enrollment provision, the automatic escalation provision is also added to encourage retirement savings. This provision allows for an automatic increase of 1% each year following participant enrollment. Employees will likely not notice a big difference in the amount they are saving for retirement if it’s only a 1% increase. My colleague and I were recently out at a plan sponsors office meeting with employees to review their accounts. Almost every conversation we had with employees involved the question of “what is 1% more?”. We asked employees what their gross pay is on their regular paycheck and calculated what different contribution rates were, in dollars. Speaking dollars rather than percentage contributions resonates more with employees. A common response when hearing the dollar amounts was in fact, “oh, that’s not as much as I thought” and “I can do that”. During the review of accounts, the majority of employees increased their contribution rates and signed up for the automatic increase feature that the recordkeeper offered on their website. If the plan provisions do not include automatic escalation, most recordkeepers have an automatic increase feature employees can sign up for, themselves. With annual raises, a 1% increase may not make much of a difference for employee paychecks but the additional savings for the participants will benefit them in the long run.4. Employee Education
Employee education is a key component to prepare employees to save for retirement. As part of the retirement benefit, it’s important that employees learn what it is about and why it’s important. This can be accomplished through employee education meetings, employee newsletters, videos, and other resources. Amanda Umpierrez wrote an article in 401k Specialist Magazine, named Participants Admit Auto-Enrollment Kickstarts the Retirement Savings Journey, that provided statistics from a Principal study stating ”Despite the lack of knowledge, respondents indicated being open to working with financial institutions and experts. Seventy percent said they trust the financial institutions they work with, and 65% trust that their retirement plan service provider is helping them reach their retirement goals. Fifty percent believe their employer is doing all they can to help them save for retirement.” Seeing these numbers and that employees have trust in their employers and financial professionals, it’s important to lean on the experts to provide a better financial path forward for employees. This will prove to them that you do have their best interest in mind and begin that trust in the leadership of the company. The more awareness employees have of retirement savings, the better off they will be to start thinking more strategically about their financial future.
5. Financial Wellness Resources
There are more and more opportunities available since the world has become more virtual, allowing for online financial wellness resources and programs. Many recordkeepers embed financial wellness training and educational resources on the recordkeeper website. There are alternative companies such as Enrich, LifeCents, Financial Finesse, etc., that will partner with financial advisors to bring plan sponsors, access to more artificially intelligent programs that can target your employees’ specific needs. Through these programs, there is potential to incentivize employees to complete certain tasks while putting themselves in a better position long-term. I hope these tips help you to create a strategic plan for your company retirement plan and evaluate your current plan needs and wants. While we can’t control the market or the economy, we can control the retirement benefits we provide to employees. Take control in 2023.This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. To determine what is appropriate for you, please contact your Rose Street Financial Professional. Information obtained from third-party sources are believed to be reliable but not guaranteed.
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JULIA MUNSON
AIF® | Retirement Relationship Manager
Meet Julia, a people-focused life-long learner with several years of experience in the retirement plan industry. Throughout her career, Julia has been committed to maintaining strong client relationships by providing incredible customer service. She is passionate about helping clients define and plan for their retirement goals. Julia’s daily role at the firm energizes and reinforces her commitment to client-focused work.Interested in more?
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