With nearly 59 million employees lacking access to workplace retirement plans, according to a recent TIAA study, we’re facing a retirement readiness crisis that demands immediate attention. The traditional retirement security model needs an overhaul, and generally, employees lack confidence in achieving their savings goals. Only 49% of workers with retirement goals believe they’ll actually reach their savings targets, down from 52% just last year, a recent Bankrate survey found.
In a recent interview with Employee Benefit News, Rachel Gustafson, a certified financial planner who specializes in comprehensive financial planning, explored this growing challenge and offered insights into how benefit leaders can better support their workforce. The stakes couldn’t be higher, particularly as Social Security faces an uncertain future and employees are increasingly turning to their employers for retirement guidance.
In the interview, Ms. Gustafson observed, “Social Security faces challenges, employer plans can be confusing and the world around us seems increasingly unpredictable.” She emphasized that even small amounts matter, noting “…it’s never too early to start saving, and even a small amount is better than nothing at all.”
The decades-long shift from traditional pensions to 401(k) and 403(b) plans has put the responsibility of saving for retirement squarely on employees’ shoulders, but many still lack the financial literacy to navigate these decisions effectively. Ms. Gustafson noted that society has fallen short when it comes to providing adequate financial education, with young people leaving school without understanding basic concepts like how 401(k) plans work or the benefits Social Security actually provides.
This knowledge gap creates a domino effect. Lack of financial understanding leads to inadequate retirement savings, which compound over time. Making matters worse, younger generations face the additional challenge of supporting both children and aging parents while trying to save for their own futures.
Auto-enrollment features have helped increase participation rates, particularly among employees who might not otherwise engage with their retirement benefits. However, default contribution rates often fall short of what employees actually need to save for a secure retirement. The gap between “what they can save” versus “what they need to save” remains significant.
State-sponsored auto-IRA programs are emerging as one solution for employees without workplace plans. Oregon’s OregonSaves program, for example, requires employers to either offer a workplace retirement plan or automatically enroll employees in the state’s Roth IRA program. While these programs provide access where none existed before, they come with limitations, including lower contribution thresholds compared to traditional employer-sponsored plans like 401(k)s..
Simply offering a retirement plan isn’t enough anymore. Plan sponsors should focus on employee education and engagement. Employees need to understand how their benefits work, why they matter, and how to maximize their value. This is particularly important for younger workers who may face reduced Social Security benefits and need to rely more heavily on their own savings.
The Roth option within retirement plans deserves special attention. These accounts allow for after-tax contributions, offer tax-free growth, and can serve multiple purposes, including potentially saving for education or a home purchase, according to Ms. Gustafson. This flexibility can make retirement savings feel more accessible to employees juggling competing financial priorities.
The bottom line: Plan sponsors who invest in comprehensive financial education and innovative plan design will better serve their employees and likely see improved retirement outcomes across their workforce. And in an era of retirement insecurity, those who step up with thoughtful, well-communicated benefits will stand out as employers of choice.
