Around 10,000 Americans turn 65 every day, and the vast majority have not saved enough money for retirement. A recent AARP study shows 40% of employees feel that they will never be able to retire. You may be asking yourself, “How do these stats impact me as an employer?” Did you know delayed retirement cost employers up to $50,000 per employee per year in increased compensation and healthcare cost?
Tracking retirement readiness from an employer’s perspective means first aligning the total rewards objectives, evaluating the demographic and financial data, defining success, developing a plan and measuring the results. Every action an employer takes in managing a retirement plan – from determining eligibility, enrollment, contribution level, vesting and investment options – impacts other areas of the plan and ultimately the overall success of the benefit offering.
There are ways to improve participation in your retirement plans and employee education is critical. Employees need and want to understand how Social Security, personal savings, employer sponsored retirement plans and home equity factor in to determining when they can stop working.
In addition to employee education, some employers are implementing the following provisions to increase participation into their retirement plans and better prepare employees for retirement:
- Modifying the employer contribution strategy to the retirement plans to encourage greater employee contributions. For example, some employers have changed to a “stretched match” which provides 25% employer match of the first 12%, rather than 50% match of first 6% to encourage greater employee contributions.
- Auto-enrollment into the retirement plan with an employee default contribution of at least 3%.
- Auto-escalate employee’s retirement contributions each year. For example, some employers are annually increasing employee contributions by 1% per year up to a maximum of 10%.
- Auto re-enroll for employees that initially opted out of the retirement plan.
By implementing the three auto-features, employers can experience plan participation of approximately 90%.
Which strategy is right for your organization? We can help you determine if your employee population is on track to retire and consult with you on current strategies to help build a culture of financial wellbeing. If you are interested in learning more, please contact us today.