Learn 9 ways employers are encouraging their workers to save for retirement and how your business can benefit from a thoughtful employee retirement savings plan.
Retirement has changed a lot over the past few decades. There are no more gold watches and lifetime pensions. Older generations could once rely on their company providing some income in their later years. However, workers today will have to leverage Social Security benefits and personal savings.
Savings will likely need to last longer, too. The average American is living almost 80 years, a decade longer than workers retiring in the 1950s or early 1960s.
Employers that find creative ways to help employees prepare will stand out in a competitive labor market. Read on to learn more about the state of retirement preparation in America, and how employers can help motivate their workers to plan ahead.
How prepared are U.S. workers for retirement?
How prepared are United States workers for retirement? More than a third of Americans say they will never have enough saved to stop working, according to the Natixis “2021 Global Retirement Index.” In the study, 40% of the 8,550 people surveyed said it “will take a miracle” for them to retire securely.
That’s a staggering number of people that admit they are unprepared. It puts an additional burden on Social Security and can have far reaching effects on society in the future. When you encourage your employees to save for retirement, you’re letting them know you care about them and helping them avert a crisis later in life.
Saving for employee retirement benefits employers, too
Three-quarters of newly-hired employees said offering a 401(k) provides them with a strong reason to stay.
Besides helping your employees save for their golden years, offering financial-wellness benefits also produces significant business benefits, including:
- Hiring and retention: Offering a retirement plan can help attract and retain employees. In a tight labor market, benefits are often the deciding factor for employees on accepting a job or staying at a job. Three-quarters of newly-hired employees said offering a 401(k) provides them with a strong reason to stay.
- Tax credits: Your company may be eligible for federal tax credits of up to $16,500 over 3 years for offering retirement programs.
- Tax deductions: Matching contributions to an employee retirement savings plan are generally tax-deductible up to certain limits.
9 ways employers can encourage their employees to save for retirement
Here are some of the methods companies are using to stimulate retirement savings. Let’s start with the basics and then look at some of the more creative things employers are doing.
401(k), SIMPLE IRAs, and SEP-IRAs
Most retirement plans will be 401(k) or IRA plans, although there are a few options. By offering one of these plans, you make retirement savings possible.
- 401(k) plans: 401(k)s are low cost, easy to set up, and flexible. Employees contribute a defined amount each pay period pre-tax. Employers can choose whether they want to match a portion of employee contributions.
- SIMPLE IRA Plans: Businesses with fewer than 100 employees can also offer a Savings Incentive Match Plan for Employees (SIMPLE) IRA. Employees and employers can contribute. There is less paperwork for employers than a 401(k), but employers must match up to 2-3% of contributions.
- SEP-IRA Plans: A Simplified Employee Pension (SEP) IRA is more typical for those self-employed or small businesses. Employees do not contribute. Only the employer can. However, employers have flexibility in how much and how often they contribute.
Educate your employees
A study by Morning Consult for the Certified Financial Planner Board of Standards revealed that roughly 30% of workers don’t know whether their employers offer any retirement plans. So, the first step is letting employees know about what you offer and how to prepare employees for retirement.
You can also educate them about the long-term benefits of starting a savings plan and sticking with it. Most plan providers are happy to provide workshops or free information for employers. You can offer education along with open enrollment periods.
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Offer automatic signup
Adding automatic enrollment to your 401(k) plan significantly increases participation by employees. A study by Vanguard showed that fewer than 30% of workers voluntarily sign up for retirement plans. However, offering automatic signup boosts participation rates to 91%. Over time, 9 out of 10 employees also increase their deferral amounts for even greater savings.
It pays off for employees in the long run. Retirement savings plans work best when workers start early to take advantage of compound interest. Another study by Principal shows that 84% of workers who were automatically enrolled said they started saving for retirement sooner than if they had to act on their own.
A study by Vanguard showed that fewer than 30% of workers voluntarily sign up for retirement plans. However, offering automatic signup boosts participation rates to 91%.
Consider automatic escalation
Employers may also be able to set up retirement plans that automatically increase employee contributions over time. While employees can opt out of increases, if they do not take action, deductions grow automatically based on plan documents.
Extend retirement plans to part-timers
The SECURE (Setting Every Community Up for Retirement) Act reduced requirements for part-time employees to sign up for a company 401(k) plan. Starting in 2024, employees working at least 500 hours during 12 months for 3 consecutive years can contribute to a 401(k) plan.
r about catch-up contributions. Workers who are 50 or older can make extra contributions to their employer retirement plans or IRAs.
Offer profit sharing or bonuses
Some companies are offering profit-sharing plans. For example, if your company hits its annual budget, revenue target, or team goals, employees can earn a bonus that’s contributed to their retirement savings plan. By doing so, you help employees save for retirement, but also incentivize them to work toward company goals.
Highlight Environmental, Social, and Governance (ESG) options
Offer target-date investment options
Some employees don’t participate in employer-sponsored retirement plans because they are uncomfortable making investment decisions. Target-date investments grow and evolve depending on someone’s age and anticipated retirement date.
Make sure you’re participating
A third of small business owners do not have a retirement plan of their own. Make sure you’re participating in the benefits of the plans you offer so you can champion them for employees.
Help employees make smart financial decisions
With few employers offering any form of funded pension plans, the responsibility for a secure retirement falls to individuals. As an employer, you can encourage them to think about their financial future and make smart decisions to help them live a better life in retirement.