Amid a backdrop of rampant market volatility, soaring inflation, recessionary fears, and an increasingly aging population, Americans are worried about retirement security. A recent BlackRock survey found that “93% of workplace savers are now worried about market volatility negatively impacting their retirement savings, and 86% feel worried about inflation whittling away their nest egg. Perhaps most jarring, only 21% of savers feel very confident that they’ll have enough money to last through retirement.” The BlackRock study was cited in a recent article from Georgetown University’s Center for Retirement Initiatives (CRI).
Given the current environment, employers have an opportunity to help boost retirement confidence among workplace retirement plan participants. The CRI recommended building resilience into defined contribution plans; specifically, reviewing plan design to make shifts that offer greater flexibility and dynamic investment strategies to help participants make the most of their accumulation years. The CRI offered three strategies to help bolster retirement plan resilience:
- Revisit active strategies: Active investment strategies gained momentum during the bull market. CRI recommended taking another look at active strategies “seeking to provide consistent, incremental excess returns. Importantly, active strategies can provide a tailwind to retirement savings, helping to maximize retirement outcomes while softening the blow of potential longer-term inflation eroding purchasing power.”
According to CRI, larger asset classes participants are already invested in, such as target date funds, US Large Cap Equity funds, and Core Bonds, have the potential to drive significant impact. These asset classes combined represent 80% of all participant allocations, CRI noted, citing the Black Rock survey. - Consider guaranteed income: Guaranteed income options in retirement plans get a lot of airtime, but uptake has been slow to take hold. According to BlackRock and CRI, “Workplace savers want to know (and with high degrees of consistency) what their nest egg will be, how much they’ll spend each year in retirement, and how long their savings will last.” Guaranteed income solutions can help ease participants’ concerns and give them the visibility they desire when it comes to retirement planning and income strategies.
- Help employees prepare for emergencies: A recent Bank of America study cited by CRI found that the number of people who made 401(k) hardship withdrawals in the second quarter of 2023 increased 36% year over year. This trend clearly indicates a need for employers to help employees create alternative financial stopgaps for emergencies and unforeseen expenses. Moreover, it’s widely documented that having access to a short-term liquid savings option can help individuals stay on track for longer-term savings goals, according to CRI. Research from Voya in partnership with BlackRock “found that participants with inadequate emergency funds are 13 times more likely to take a hardship withdrawal than those with adequate savings.”
The Emergency Savings Act, passed as part of SECURE 2.0, makes it possible to include emergency savings programs in retirement plans. It also makes possible employer matching contributions for emergency savings accounts. According to CRI, “While we shouldn’t underestimate the effort required from employers to implement such provisions, these programs could become a critical tool to helping participants manage their short- and long-term savings while staying invested in their DC plan.”
Plan sponsors have more options than ever before to build resilience into retirement plans and help today’s workforce save more confidently for the future. What’s more, employees want and value benefits that will help them create financial well-being and security. Offering such benefits will help your organization stand out as an employer of choice, providing a boost to recruiting, retention, and employee satisfaction. Implementing measures such as active strategies, in-plan guaranteed income solutions, and emergency savings programs can help both employers and employees reap the benefits of a more resilient and financially secure future.
