Why Aren’t Employees Saving for Retirement?
Workplace retirement plans are often a cornerstone of an employee’s retirement savings strategy, but many employees aren’t taking advantage of them. A recent survey by Principal Financial Group sheds light on the primary obstacles preventing participation.
Eligibility Rules
Surprisingly, many employees are unsure if they’re eligible for their company’s retirement plan. Past experiences with different plans, automatic enrollment in previous jobs, and the sheer volume of employee benefit information can contribute to this confusion.
The Process is Confusing
Principal’s research revealed that nearly 60% of non-participants believed they were enrolled in their workplace plans. They thought they had already enrolled, or they thought they were auto-enrolled. This misconception highlights a significant knowledge gap, and the delay can jeopardize their financial future.
Balancing Debt and Daily Expenses
Financial pressures from debt and living expenses often overshadow retirement savings. Employees across all age groups and income levels cite these factors as primary reasons for not participating.
Overcoming These Challenges
To increase participation, employers can take several steps:
Increase focus on enrollment: Time and attention might be the easiest and most cost-effective way to help more employees participate. Consider addressing retirement plan enrollment during the annual benefits enrollment period. Nearly half (49%) of non-participating employees surveyed would be interested in enrolling if given the opportunity annually when they’re already focusing on other benefits.
Another option is to highlight retirement plan enrollment during performance review season; 46% surveyed said they would be interested in hearing about enrollment during this time.
Personalize communications: Tailor messages based on plan information and what’s known about an individual’s motivation.
Simplify the process: Use automated nudges and clear, actionable steps for employees who start but don’t finish enrolling.
Help employees balance saving and debt: SECURE Act 2.0 offers some options employers can consider, like matching student loan debt repayment and emergency savings provisions. Under the SECURE Act, employers can also offer small incentives, like low-dollar gift cards or other small perks, but they can only offer them to employees who haven’t chosen to defer their retirement benefits. Employers should consult their advisor, third-party administrator, or ERISA counsel before rolling out any incentives.
If adding these options, communicate! Show how an initial low deferral rate of 1-2% can be a good starting point for employees who are paying down debt.
Leverage automatic features: Implement auto-enrollment and auto-increase features to make saving easier.
Review employer matches: Offer a competitive employer match to incentivize participation and consider stretching the match to encourage higher contributions.
For example, a 100% match of a participant’s first 4% of deferral contribution costs the same as a 50% match on the first 8% of deferral but can incentivize the participant to contribute more.
Helping employees overcome the hurdles to retirement savings can increase their financial well-being and overall job satisfaction. Employers can significantly boost participation rates by addressing confusion about eligibility, simplifying the enrollment process, and providing support for debt management. Implementing strategies like auto-enrollment, auto-increase, and competitive employer matches can help improve employees’ retirement outcomes.
Contact Savant Retirement Plan Services for more ideas on how you can increase participation in your company retirement plan.
Source: Principal: Why Are Employees Not Participating in Their 401(k)s?
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
Patricia L. Hutchinson
Director of Retirement Plan Services
MBA