How to Help Employees Accelerate Retirement Savings
With retirement just around the corner for many, employees are increasingly concerned about their financial future for several reasons, including recent economic events, personal financial issues, or job changes.
Data from the Bureau of Labor and Statistics shows that while 68% of employers offered access to the private retirement industry this year, only 51% of employees took advantage of this opportunity. Once the SECURE Act 2.0 passes, this figure will likely increase.
However, beyond offering access to private retirement plans, employers should actively work to educate their employees about the available options and how best to utilize them to achieve financial security.
Prioritize Education
Education should be a top priority for employers looking to ensure the financial well-being of their staff members.
Employers can encourage employees to set up emergency savings accounts, create a budget, and take advantage of other services such as free financial counseling or budgeting advice.
Employers can provide employees with information about retirement funds, explaining the different benefits of each type of account. They can also explain how to save money for retirement in each type of account and provide materials on the various tax incentives associated with retirement savings.
Employees who feel financially secure are more likely to contribute to a 401(k) plan.
Show Latecomers That They Have Options
Even if some employees are only just starting to save late in their careers, they can still strive to achieve their financial goals. According to experts, aiming to replace 75% of pre-retirement income through retirement savings is the goal.
To accomplish this, employees should consider contributing 12-15% of their salary to a retirement plan and take advantage of any employer match programs that may be available. Employers should also consider providing access to financial advisors or free retirement planning tools to help employees identify how much they need to save based on their age and income level.
Implementing other mechanisms to help latecomers catch up, such as allowing employees to contribute after-tax dollars to their 401(k) accounts or offering special incentives for those who start putting money into retirement funds at a later age, can also be beneficial.
Automatic Enrollment Is Only for New Employees
Now that SECURE Act 2.0 has passed, employers will have to automatically enroll new employees in a 401(k) or a 403(b) plan unless the employee opts out. This will help to ensure that more employees are taking part in their employer's retirement plan and not miss out on essential benefits.
However, that still leaves out current employees not enrolled in a plan. To help the situation, employers should make it easy and accessible for all employees to sign up for a 401(k) or 403(b) plan and begin making automatic contributions.
Employers should also encourage employees to increase their contributions whenever possible and remind them of any employer matching programs.
Offer Flexible Retirement Options
The traditional retirement plan is no longer a one-size-fits-all solution for employees. The shift to working remotely and gig-style jobs has altered the structure of the traditional workforce, and employers should consider offering more flexible retirement options.
Employers could also consider providing access to target-date funds tailored to the employee's retirement timeline. These funds offer automatic rebalancing to ensure that the investments align with the employee's goals.
By creating a menu of investment options, employers can allow employees to choose from a diversity of investments such as real estate, venture capital, private equity, or commodities.
Finally, employers could explore options such as non-qualified deferred compensation plans (NQDCs) that allow employees to save additional money for retirement beyond the contribution limits for qualified programs.
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