Rose Street Advisors

Your guide from hire to retire.

As we reflect on 2022, there were several market and economic hurdles that led to a stressful year for many of us. Some things are just out of our control. As we go into 2023, let’s focus on what we can control.

When it comes to employer sponsored retirement plans, we often get questions from plan sponsors such as “How do we get our employees to participate? How can we provide a more competitive retirement plan that will allow employees to save more? What can we do to stress to our employees how important it is to begin saving for retirement now?” As a 401(k) participant myself as well as a retirement plan relationship manager, I want to help you take control of helping your employees by providing 5 tips of how to guide participants to save for retirement.

Since I have started working in the retirement plan industry, I have noticed that a lot of younger employees don’t ask many questions about saving for retirement. On the other end of the spectrum, I have seen individuals reach retirement age, that have saved appropriately as well as those that have not and what a difference it can make in one’s life in retirement. Years ago, I had an elderly client come in and ask how she could get more money to be able to pay medical bills, when her retirement funds were diminishing. There wasn’t much that could be done, and it was heartbreaking to see the defeat and sadness in her eyes. She did not want to burden her family by asking for help, but social security just wouldn’t cover what was needed and her retirement funds were running out. This has always stuck with me and have since made it my mission to help people at any age understand the importance of retirement savings and how to prepare so that one day, they will be able to retire.

The main goal for saving for retirement is to save a sustainable amount of money to replace/maintain income for your lifestyle. If you expect to travel, golf, dine out, buy a vacation home, etc. in retirement, you will likely need to save more money to prepare for that. The sooner a person starts saving for retirement, the more potential for long-term earnings growth in the account. How can YOU as the EMPLOYER help your employees understand how much to save? And what can YOU as the EMPLOYER do, to encourage your employees to maximize their retirement savings? In the following paragraphs, there are 5 tips that can help YOU as the EMPLOYER, guide participants to save for retirement.

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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Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc. A Registered Broker/Dealer and Investment Adviser, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. File #: 5395125.1

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.