Do millennials Expect 401k Programs?

Younger workers contribute less to their retirement savings, but not because they don’t want to. Here’s how to attract top talent with 401k programs.

do millennials expect 401k programs?

An astonishing two-thirds of millennials have no retirement savings, according to a recent study by the National Institute on Retirement Security. What’s more, even though 66 percent of millennials work for employers who offer 401k programs, only 34.3 percent participate in the plan.

Of those who are contributing to a plan, most millennial employees aren’t saving enough. Financial advisors recommend that young people set aside 15 percent of their annual salary for retirement in order to generate enough savings to maintain their current lifestyle. By that standard, only 5 percent of millennials are saving enough. Millennials who do contribute to a retirement account save an average of 10 percent of their annual income, including employer matching funds.

Looking at these numbers, you might assume that millennials don’t understand the seriousness of their own retirement needs. Perhaps they’d rather spend their money on their current lifestyle than put it away for a time that seems so far off and detached. But this simply isn’t true.

In fact, a 2016 survey shows just the opposite. Millennials are more likely than their parents and grandparents to worry that they might not be putting enough money away for their golden years. Almost half (47 percent) of millennials are concerned that they won’t be able to retire when they want to. And more than two-thirds (67 percent) think they might outlive their savings. A full 92 percent of this generation says that the US as a whole is facing a retirement crisis. Many of these young people have watched their parents and grandparents struggle to pay bills in their old age, and they realize that this is a possibility for themselves as well.

So what gives? Why aren’t millennials saving for retirement if they know that they should be? The keys to answering that question are access and eligibility.

Millennial employee access to 401k programs

You might expect young people to report that they don’t participate in retirement savings plans because they can’t afford it. After all, we hear reports about staggering student loan debt, and we know that the economy is still inching its way out of a recession. But the number one reason millennial employees give for their lack of retirement plan participation is eligibility.

We noted early in this article that about two-thirds of millennials work for an employer who offers a retirement plan. But the majority of those young employees are not eligible to participate. The main reasons for this are that millennials are more likely to work part-time, and more likely to have been at their current job for less than a year. Employer contribution rules make it harder for these workers to save because their part-time, short-term status makes them ineligible for retirement benefits.

In fact, almost twice the number of millennials work part-time compared to Gen X and Baby Boomer employees. Economists aren’t sure exactly why this is the case, but they suspect that it has more to do with the economy than a lack of effort or will. Many millennials entered the workforce when the Great Recession was in full swing. There simply weren’t enough professional jobs available where they could use their college degrees and earn fringe benefits. Now that employment rates are picking up a bit, their degrees are old and they have no relevant experience to show for them.

The news isn’t all bad for millennial employees. There are a few digital trends in employer 401k programs that millennials love–and they’re taking advantage of them.

The first of these is auto-enrollment. According to a 2016 Bank of America (BofA) report, more employers today are offering plans that auto-enroll all eligible employees into 401k programs. Typically, this type of benefit would automatically deduct a percentage of the employee’s salary from their paycheck and deposit it into a 401k program.

Studies show that 97 percent of employees who are automatically enrolled in a retirement plan continue to contribute and save more money than those who have to opt in.

Many new retirement plans have an auto-increase feature as well. This means that the employee’s contributions will automatically go up whenever they receive a pay raise. According to BofA, plans that include both of these automatic features rose by 153 percent in 2016. For a lot of people, this is a pain-free way of adding value to retirement savings without sacrificing your current lifestyle. And because millennials are generally more tech-savvy, they are happy to take advantage of these digital trends.

What does this mean for employers?

If your organization wants to attract talented millennial workers, you have a tremendous opportunity here. Even if you only have part-time positions to offer, you can increase your appeal to young workers by offering fringe benefits.

According to the Employee Retirement Income Security Act, you might have to offer your part-time employees access to your retirement benefits if they work more than 1,000 hours in a year. That comes out to about 19 hours a week.

But even if your part-time employees work fewer hours than that, you might want to consider offering some retirement benefits anyway. (Healthcare, sick leave, and vacation days too!) For example, you might allow part-time employees to contribute to employer-sponsored 401k programs, but make your employer match smaller than it would be for full-time employees. Or you could require them to work for you for a certain amount of time before they are fully vested in the portion of their savings that you contributed.

Employee benefits boost morale and help your staff to feel valued. When you let your people know that you want to help them take care of their health and save for their future, they are more likely to feel invested in your business, and they’ll probably stick around longer.

Besides, at some point, you might want to offer those part-time workers a full-time position. If they enjoy working for you and feel positive about your company, they are more likely to accept.
Additionally, it is important to offer those digital, automatic features in your retirement plans. At this point, millennial employees expect them. It’s possible that Gen X and Baby Boomers might have come to expect them as well.

Studies show that 97 percent of employees who are automatically enrolled in a retirement plan continue to contribute and save more money than those who have to opt in. So it’s good for your employees and good for morale. When they look at their annual statements and see that they are getting closer to their retirement goals, they’ll know they have your company to thank for it. And grateful employees lead to a happy workplace.

This article is for informational purposes only. It does not represent HR or legal advice. Laws and regulations are subject to change at the national and local level, and you should seek legal counsel or an HR expert for advice specific to your inquiry.

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