Nearly 70% of employees are stressed about their finances and living paycheck to paycheck, according to PNC data cited in a recent Employee Benefit News article. More than a quarter look to their employer for help with long-term financial planning. When employees hit the pause button on retirement contributions to deal with immediate needs, plan sponsors face a question that goes beyond plan administration: Should you get involved?
The answer, according to Kevin Gaston, head of strategic retirement consulting at Vestwell, is yes—but maybe not in the way you think. Mr. Gaston was quoted liberally in the EBN article, which explored ways that benefit leaders can help employees navigate the tricky tradeoffs between short-term expenses and long-term retirement security without crossing into territory that requires technical expertise they don’t have.
“Your employees trust you,” Mr. Gaston explained. “You don’t have to be a fund expert or a legal expert; there are a lot of questions that don’t fall into specific technical knowledge, but [are more along the lines of] ‘I can’t determine whether I should save for a truck, save for my kid’s education or save for retirement.'”
The key is actively presenting options, not providing definitive answers, he said. Pointing employees toward existing benefits like emergency savings accounts or free budgeting resources can help them make more informed financial decisions.
Before employees redirect retirement contributions, benefit leaders can highlight some basic considerations. Where is the money going? Paying down high-interest credit card debt might justify a temporary pause, while taking out a low-interest student loan instead of tapping retirement savings could make more sense long-term. “It’s about the next-best dollar,” Mr. Gaston noted. “You have to ask yourself, ‘Will I look back on this and say it was the right move?'”
If an employee pauses contributions, make it easy to restart them. This is where auto-enrollment proves its value beyond initially getting employees into the plan. Mr. Gaston recommended that employees who pause should immediately schedule a restart date in their calendar—many 401(k) websites allow this. “Don’t leave it to chance, hold yourself accountable,” he advised.
Better yet, help employees avoid these tough choices altogether. Emergency savings accounts and other workplace savings options can prevent the retirement-or-emergency dilemma from arising in the first place. AARP research, also cited in Employee Benefit News, shows employees are 15 times more likely to use a workplace savings option than an individual one. Plan sponsors can enhance these tools with modest employer contributions and brief educational requirements tied to withdrawals, creating opportunities for learning while providing access to funds.
Timing matters when engaging employees about savings. Salary increases, life events, and open enrollment all offer natural opportunities to recommend starting or increasing contributions. “The best educational moment for a benefits practitioner is tagging things to when people get pay raises,” Mr. Gaston observed. “The right time to engage is [when] something just happened and they have an opportunity to change their trajectory.”
By offering thoughtful guidance and benefits that address immediate financial pressures, plan sponsors can help employees build stronger financial foundations. The goal is to help employees tap into resources other than their retirement accounts when challenges arise. “If you’re looking to stabilize your workforce, you don’t actually have to do much to get them on their feet, [and then] they look at that [resource] as their first reserve, instead of their retirement,” Mr. Gaston concluded.
