Plan Sponsors Hold the Keys to Boosting Retirement Readiness
September 3, 2020 — Boston
Plan design strategies and comprehensive communications can incentivize employees to save for the future
Employers play a critical role in motivating their employees to begin saving for retirement, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.
Cerulli’s research finds that an employer’s matching contribution is the most influential factor motivating participants to begin saving for retirement. Two-thirds (66%) of 401(k) participants indicate they would be very likely to increase contributions if their employer increased the matching formula (e.g., matches up to 5% instead of up to 3%). At the same time, only one-third (32%) would be very likely to increase their contributions if they received a personalized statement with financial projections showing inadequate retirement savings. Additionally, participants most frequently indicate they began saving for retirement because their employer offered a matching contribution (46%), they could afford to start saving for retirement (44%), or they were automatically enrolled in their employer’s retirement savings plan (29%).
In addition to employer contributions and auto-enrollment features, participants can benefit from tailored retirement planning advice and holistic financial wellness programs. “Plan sponsors may encourage greater participation through targeted communications,” remarks Anastasia Krymkowski, associate director at Cerulli. “For instance, employers might encourage an employee contributing just 2% to maximize the employer match and illustrate the impact of that additional contribution over time.”
Although educational materials and targeted communications serve as a good starting point, the research suggests that plan-related guidance is no substitute for personalized advice. When planning for retirement, other than valuing their own research, participants are most likely (40%) to view one-on-one sessions with a professional advisor as “very helpful” while videos, articles, and employer communications are typically only seen as “somewhat helpful.” Moreover, it’s important for these conversations to frame retirement savings in the context of a participant’s broader financial picture. “Helping employees work through their current financial obligations, such as paying off student loans or establishing emergency savings, could help put them in a better position, financially and emotionally, to save for retirement,” adds Krymkowski.
For late-career employees, there is also a pressing question of how to generate income during retirement. Older participants are much more likely to contribute 15% or more of their paycheck, perhaps recognizing the risk of falling short of their savings goals. However, plan sponsors can take steps to encourage employees of all ages. “Employers—through contribution matching, auto-enrollment features, and participant education—play a key role influencing participants to save for retirement. This hands-on approach can help employees meet their current financial obligations while saving for the future,” concludes Krymkowski.