Improving Retirement Outcomes Requires Quality Communication
Improving retirement outcomes is a challenge for plan sponsors, but there are proactive steps employers can take to help employees save more and build wealth for the future. It’s the age-old conundrum: many people aren’t saving enough for retirement, and some aren’t setting aside any money at all, which is, obviously, an obstacle to improving retirement outcomes. Regardless of their status, however, one thing is clear: employees need, and want, help planning for retirement.
It seems improving retirement outcomes may come down to better communication between plan sponsors and employees. So says a new study from JPMorgan, reported by BenefitsPro. The firm’s 2018 Defined Contribution Plan Participant survey found that employees interpret general guidance as hard and fast instructions, putting far more weight on them than what’s intended. In addition, JPMorgan identified disconnects which create miscommunication between participants and plan sponsors. According to BenefitsPro, some of these issues are the result of low participant knowledge, while some stem from a dearth of confidence, misunderstandings, a misguided rebellious streak, or even fear.
In addition, JPMorgan found that while 30% of well-intentioned employees are committed to saving as much as they can for retirement while 12% said they’d wait until retirement, then figure out how to live on what they’ve managed to save. As BenefitsPro aptly points out, neither of these is a sound retirement planning practice, nor can it help plan sponsors who are working on improving retirement outcomes. In addition, while many participants have a positive outlook on retirement, nearly half feel they won’t be able to retire when they want, according to the JPMorgan survey.
Of course, there are upsides to having older employees in the workforce who choose to remain on the job longer, such as retaining their knowledge, experience, and expertise, and having them mentor younger employees. However, there are downsides, too, such as added healthcare and administration costs, and the potential for lost productivity due to sick days and health concerns. Improving retirement outcomes isn’t just critical for employees; it’s important for employers and their bottom line as well. As such, JPMorgan offered nine recommendations on how employers can work on improving retirement outcomes for participants. The BenefitsPro article features a slideshow of the recommendations, as well as data and accompanying commentary, providing context for employers seeking guidance on improving retirement outcomes.
JPMorgan’s number one tip for employers: don’t shy away from auto-enrollment and auto-escalation, which can have a significant impact on improving retirement outcomes. Employers worry about pushback from employees, but workers want auto features. JPMorgan found 25% of employers refrain from auto-enrollment, while 82% of participants are either in favor of or neutral toward it. In addition, 20% of sponsors are reluctant to implement auto-escalation as a method of improving retirement outcomes; 80% of participants “are okay with the idea, or at least don’t hate it.” That’s an endorsement of the idea, to be sure. Moreover, a vast majority of participants (95%) are happy about being auto-enrolled, and 97% of those whose contributions were auto-escalated were pleased with the outcome (only 6% reduced their contribution after the increase).
The JPMorgan survey also points out the importance of nudging employees – gently, or perhaps with more oomph, depending on their situation – to save more, and how it can make a difference in improving retirement outcomes. People often need a push. They are more likely to save for retirement when prompted to overcome inertia, which is most people’s default setting when it comes to making difficult, confusing, or overwhelming financial decisions. Sponsors can “nudge” employees by showing them how much they actually need to save, and the contribution rates that will get them there — 36% of those surveyed said they would find this information enormously helpful and impactful, according to JPMorgan. Additional reminders are helpful, too. It isn’t necessary to go overboard, but regular, consistent communications — and repeating those messages — are the keys to spurring employees to action and helping them save more for retirement.
The JPMorgan survey findings strongly indicate that employers can, indeed, move the needle significantly on improving retirement outcomes for participants. It takes commitment and a proactive approach, but by communicating early and often, making sure employees understand exactly what they need to do to maximize their savings, and helping them every step of the way, employers can play a significant role in guiding them to a successful, financially secure retirement.
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