Job changing frequently has become the norm rather than the exception these days. With workers 24-48 years old likely to have 12 jobs during their work careers, half before they turn 25 according to the US Bureau of Labor Statistics, the challenges of saving for retirement increase which translates into relatively low account balances in their 401k plan. There are other hurdles that younger workers face but there are opportunities for employers to help.
The challenges for younger workers that tend to engage in frequent job changing include:
- Money in multiple accounts which are hard to manage and sometimes forgotten
- Leakage or when they just withdraw the money paying steep fines and taxes
- Eligibility requirements before they can start saving or vesting of matches
In addition, many younger workers have significant student loan debt and, after the recession, tend to put their savings in low interest, conservative investments.
With younger workers more likely to depend on their 401k or 403b to retire, the challenges pose real risks. But there are ways to help which might take some systemic changes to the system including the cooperation of record keepers.
Rather than start a new worker at the plan default deferral rate, why not port over the rate from their previous plan? Additionally, why not help workers consolidate all the money in disparate 401k and IRA accounts into their current plan so they can better manage it? There may be fiduciary reasons not to but a simple analysis can satisfy these hurdles. Usually, people change jobs to make more money – why not ask if they want to put half of the increase into their retirement plan?
It would be hard if not impossible for plan sponsors to facilitate these changes – they don’t have access to the data and they are busy with other matters. It will take record keeper cooperation as well as innovative advisors to make these changes. But employees want them.
According to a study by Boston Research Technologies commissioned by the Retirement Clearinghouse, as many as 73% of plan participants would be willing to use and pay for an employer sponsored roll-in service which can take as much as two months to accomplish when employees do it on their own. And as many as 91% of employees would prefer to roll-in their previous balance rather than keep it in their previous employer’s plan or roll it into an IRA.
Why should employers care? Employees that have consolidated their retirement accounts will be able to better manage their finances spending less time at it and feeling more financially secure and less stressed resulting in better productivity. In addition, more assets in the retirement plan and higher account balances means more leverage and better service from their record keeper with little if any increased liability or costs.
Where’s the downside?
