DELIVERING BENEFITS YOUR EMPLOYEES ACTUALLY WANT
4 tips for forward thinking plan sponsors
As we sail past the holidays and into the new year, we look at ourselves and start putting together ideas for our New Year’s resolutions – goals we set for near-term improvement like shedding a few pounds or learning a new skill. But what about long-term goals like retirement? Compared to even the most ambitious resolutions, reaching a comfortable retirement on a timely schedule can seem overwhelming. However, as an employer, you have the power and opportunity to help your employees achieve that goal nonetheless. (They’ll be on their own with the rest of their resolutions, though!)
According to the 2018 Annual Plan Participant Survey from the American Century, employees want plan features that accelerate retirement savings, and they look to their employers for help. In fact, 8 in 10 participants want a nudge from employers, while 10% say they could use “a kick in the pants” to get their savings on track for retirement. 
To help you deliver the benefits your employees actually want, here are 4 forward-thinking tips employers can put into practice to give participants the push they so desperately need:
Send Targeted Messages to Low Savers
At this point you’ve gotten the message: “saving for retirement is important,” the question is, have your employees? Some of them certainly have, but what about those who aren’t saving enough for retirement? You could always send out an email blast reminding everyone to up their deferrals, but wouldn’t that just irritate the ones who are already saving enough? What about a one-size-fits-all message…that would probably sail right past the people who need it and go straight into their spam folders. What’s an employer to do?
As it turns out, recordkeepers have made huge strides in their data-crunching abilities in recent years, to the point that it’s easy to drill down and identify specific groups of plan participants – like those who are saving less than a certain percentage of their pay. Nowadays, it’s easy to send out a custom email campaign targeted specifically to low savers, complete with a personalized message for each participant.
It is important that you choose an impactful message. Here is an example: savers credit available to low wage earners. Simply stated, people that make below $64,000 (married) and/or $48,000 (head of household) can get a tax deduction for a portion of their 401(k) or IRA contributions. Essentially, the Saver’s Credit is an incentive for low- to moderate-income taxpayers to save for retirement! To learn more about the program, we’ve provided a couple of helpful links:
Offer a Meaningful Match
A company match is a powerful tool. Whether your focus is on recruitment and retention or retirement readiness, a retirement plan match is an extremely well-regarded and cost-effective benefit to consider. Believe it or not, 3 out of 4 employees prefer a 3% match over a 3% raise in pay.
Many employees interpret the employer match as a guideline for how much they should save for retirement. Match 100% of the first 3% of pay an employee defers, for instance, and most of your employees will take it as a suggestion that they can save exactly 3% each year and have enough for retirement. Unfortunately, in most cases they will need to save much more. So, it is important that you find a formula to incentivize participants to defer a meaningful amount and meets your budget. Actual cost will be lower depending on your vesting schedule.
Implement Auto Features
Auto features have become more and more commonplace these days: nearly 6 out of 10 plans have already adopted auto-enrollment, and three-fourths of those plans automatically increase default deferral rates over time. When discussing these powerful features with plan sponsors, we are often met with resistance, mainly because they fear pushback from their employees. It may rest your worried mind to know that 2 out of 3 of participants feel positive about a company that offers auto enrollment and automatic increases.
What if you had the ability to automatically get new employees on track toward retirement? Employers that implement auto enrollment have seen participation rates increase from 47% to 93%.
According to T. Rowe Price, the average default rate has reached an all-time high! For the first time ever, more plans have a default deferral rate of 6% than the previous industry standard of 3%. While this is a great start, many experts believe that Americans need to save 12-15% per year in order to achieve a comfortable retirement. We believe this is achievable by adding an auto increase feature to your plan; this plan design feature makes accelerated saving simple by slowing ramping up deferral rates each year, generally by 1-2% annually. The illustration shows a couple saving scenarios and how long it would take to get employees the recommended savings rate.
Roll Out Re-enrollment
Even if you implement auto-enrollment, it is possible that not all eligible employees are reaping the benefits. Most employers implement auto-enrollment only for new hires, so employees who were already with the company when auto-enrollment was first implemented got passed over. Also, some new hires may have opted out of enrollment when they first joined, or reduced their deferral sometime after being hired due to financial concerns; even if their financial state has improved since, most won’t take the initiative to sign up for participation on their own.
Consider re-enrollment for all eligible employees either not currently participating in the plan or contributing less than the initial default deferral rate. If your initial default deferral rate is 6%, for example, re-enrollment would include non-participating employees as well as active participants, who are saving less than 6%. Some employers do re-enrollment as a one-time event; others do it every year. Which way makes the most sense depends on the company.
Partner with us and we can help you implement these and other ideas to get your employees on track to a well-earned comfortable retirement. We can work with your recordkeeper to target campaigns to specific participants, help you choose the right deferral rate for your employees and budget constraints, figure out a match formula that optimizes employee contributions, and decide whether re-enrollment is right for your plan.