If your company is serious about employee retention, providing employees with a clear path to retirement is key. It’s a major source of uncertainty for all workers. According to the 2013 Workplace Benefits Report from Bank of America Merrill Lynch, nearly 80% of more than 1,000 current 401(k) plan enrollees surveyed said they see themselves still working into their late sixties or even their seventies. And it’s a top concern among millennials, who have all too often seen their boomer parents unprepared for this major life step.
Many employers are restoring matching programs for 401(k) plans and increasing financial advice for employees. Helping employees create a path to retirement demonstrates the company’s long-term interest in supporting their employees and their families. Today’s workers expect that employers will go beyond making options available and instead provide sound guidance.
Common Problems
Unfortunately for workers, the guaranteed pension system of years past has faded away. The social security system is in limbo, with frequent talk of raising the age of retirement or decreasing payouts. For early and mid-career workers, the reality is that the vast majority of their retirement funds will be derived from their employer’s 401(k) program.
However, these programs are not simple for workers to use. There are a variety of reasons workers divert funds from their 401(k), such as rising health care costs or covering living expenses. Many younger workers may ignore saving for retirement altogether, figuring that cash in their pocket now is more useful. It’s the employer’s responsibility to educate employees about the benefits of being enrolled in a matching 401(k) program. Employees should also be aware of the dangers of withdrawing money from the program.
Provide Options
Because employer programs are now the basis for retirement, employers should offer a range of options for workers. Workers are more mobile, so this could include rolling over retirement savings from previous jobs. Employers can also offer additional investment options and individual counseling on planning for retirement. Many employers bring in retirement experts on an ad hoc basis to discuss planning with employees.
Automated Savings Plans
One feature that more employers are offering is automatic enrollment in their 401(k) plan. Studies have demonstrated that employees in these programs are unlikely to opt out, meaning they will save more for retirement, according to the Society for Human Resource Management. Employers can provide workers with a plan that shows if they’re on track for retirement using a simple set of metrics such as expected age of retirement, monthly contribution, and savings to date.
Employees who are automatically enrolled are also more likely to continue making the maximum contribution to the program. Employees who aren’t automatically enrolled often pick a lower number to contribute, say 3%. Anything less than the maximum contribution is effectively leaving money on the table in any employer-matching program.
Some employees will still make poor decisions focused on their short-term financial interests. However, supporting employee retirement plans is the right thing to do. Employers with a strong retirement plan are likely to decrease turnover and increase employee satisfaction.
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