Employer responsibilities to employees are easy to identify. Employer responsibilities to employees are primarily focused on messaging during an employee’s working years. Saving for retirement is a challenge for many Americans. While this isn’t news in itself, many recent factors—including the Covid-19 pandemic, rising inflation, layoffs, and plummeting markets—have created new retirement planning challenges for workers. Allied Integrated Wealth, a financial planning firm, recently published an infographic (view it here) highlighting retirement planning trends and facts. Knowing some of these challenges may be useful in helping employees navigate today’s uncertainty. A quick view of the infographic can aid an employer to avoid known common pitfalls as they plan for their employee’s future.
Here are some of the highlights:
- Only 68% of employees with access to a defined contribution plan are saved in one.
The recent passage of SECURE 2.0 focused on helping more Americans gain access to opportunities to save for retirement. However, this statistic seems to indicate that even when workers have access to a retirement plan, workers aren’t taking full advantage of the savings opportunities. Employer responsibilities include educating employees on the benefits of workplace retirement plans. It is critical for everyone to immediately start saving for their future as soon as possible. Implementing automatic plan design features, such as auto-enrollment and auto-escalation can help boost participation and savings rates and improve outcomes. The auto features which ‘automatically’ enroll participants into the plan and gradually increase their contributions can no longer be ignored! - Only about 50% of Americans have calculated how much money they need to save in retirement. Unfortunately, 80% of individuals who took a 38-question online quiz on financial literacy failed.
Financial literacy is critical to achieving overall financial well-being and retirement readiness. Two-thirds of workers believe their employers are responsible for their-own financial well-being. Implementing financial wellness programs and providing employees access to financial planning tools can help motivate employees and set them up for success. A side benefit to employers is that strong financial literacy programs usually improve worker productivity and job satisfaction while simultaneously reducing healthcare costs and absenteeism. A win, win situation occurs when employer responsibilities are known and well communicated. - Social Security alone won’t cut it. Social Security will replace approximately 40% of the typical employee’s pre-tax retirement income.
Ask most workers today, and they are likely to tell you they aren’t banking on Social Security being available when they retire. If that’s the case, why aren’t more Americans making a concerted effort to plan and save for retirement? Many cite personal financial difficulties making ends meet as their primary reasons for being unable to plan for the future. Around 63% of Americans live paycheck-to-paycheck, which has only been exacerbated by inflation. Unfortunately, at the same time, wages have remained stagnant. Employers now have congressional and regulatory approval to offer additional benefits that act as “financial safety nets.” Wide acceptance of emergency savings accounts and student loan repayment assistance or matching programs, can help alleviate financial stress. Employers are now permitted to contribute the equivalent of an employee’s student loan payment to their retirement account. For example, one-time cost-of-living increases and other perks, such as subsidized childcare or telehealth, can be an option for employers with the budgets to offer them. - Planning early is important. Nearly half (46%) of employees wish they’d prioritized saving for retirement around age 30, but 41% of retirees say they started making saving a priority around age 45. Time is on the side of the employee – until it is not. The time to begin saving for retirement is now. Or, better-yet, yesterday!
Employer responsibilities include the focus on effective communication. Employers must send a message to employees that there is an urgent need to to save for retirement early and often. Increased awareness and education efforts, along with a heightened cadence of communication is the employer’s responsibility. Providing employees access to financial advice, will help to remind and encourage employees of the benefits of their workplace retirement plan. Within a defined contribution retirement system, it is not the employer’s responsibility to save for the employee’s retirement. However, it is incumbent upon the employer to help employees to recognize the importance of saving as much as possible, as soon as possible.
