Competing Priorities and Plan Engagement Challenge Retirement Saving

While most workers are relying on their employer-sponsored retirement plan as their main source of retirement income, some aren’t taking advantage of this valuable employer benefit. What’s preventing them from saving? Competing financial priorities, debt, and retirement plans that don’t engage workers in planning their future. Retirement plans, however, offer many features that can help overcome these obstacles and get workers saving.

8 out of 10 workers plan to rely primarily on a workplace retirement plan

According to a Retirement Insights flash survey conducted in February 2017, workers rely on employer benefits to help them prepare for the future. Most say their workplace plan will be their main source of income in retirement. Social Security (68 percent) and personal savings (44 percent) are also expected income sources.

Less than half of workers have retirement savings

According to the Federal Reserve Board’s most recent Survey of Consumer Finances, two-thirds of workers say saving for retirement is a major priority, but less than half (49 percent) of households report ownership of any type of retirement account – including workplace retirement plans and personal savings like IRAs. What’s even more alarming is that 40 percent of pre-retirement age workers (ages 55 to 64) don’t own a retirement account, according to this survey.

Few small companies offer a retirement plan – less than 20 percent of firms with under 100 employees have a plan in place. Comparatively, larger companies offer one 88 percent of the time, according to a Retirement Insights analysis of 5500 reporting. This disparity may be due to the misconception that these plans can be expensive and difficult to manage. However, today’s retirement plans are quite affordable, offer features that simplify plan management, and have many benefits for employers. For example, some employers can take advantage of tax credits that reduce plan startup costs, and a more competitive benefits package can attract new talent and improve employee loyalty.

Competing priorities and plan engagement challenge retirement saving

There are a number of reasons keeping workers from saving in their workplace retirement plan, according to a 2016 BrightWork Partners survey. For some, other financial priorities, such as not wanting to tie up their money (41 percent), paying down debt (29 percent), maintaining their current lifestyle (27 percent), or saving for a home (24 percent) prevent them from putting money away for the future. And for many, debt stands in the way – almost seven in ten classify debt as at least a minor problem, the survey found.

Others say their workplace plan is failing to engage them to save, the survey found. A third “haven’t gotten around to signing up,” while others say the plan doesn’t offer a match (25 percent) or the match isn’t enough to incent them to save (19 percent). Thirty-four percent say saving for retirement is not a priority right now, but few – just 12 percent – say they don’t need to save.

Source: Voice of the Defined Contribution Participant Study. BrightWork Partners, 2016.

Employee benefit experiences are improving

Although engaging workers in retirement planning can be difficult, employee benefit experiences have improved over the last five years. Satisfaction with available retirement plan information grew from 78 to 91 percent from 2010 to 2015. Participants say it’s easy to enroll (92 percent) in the plan and make changes (81 percent). However, workers find understanding the plan choices and features to be difficult, with 29 percent rating it very to somewhat difficult, according to the Retirement Insights Flash Survey.

Despite these gains, most workers aren’t very confident they will achieve their retirement goals Only 19 percent of survey respondents are very confident they can reach their retirement income target.

Engagement is critical to retirement readiness

Engaging workers in their retirement planning is critical to their future success and the success of a retirement plan. Offering retirement plan benefits can help promote your business goals while also helping your employees. There are steps employers can take to encourage employees to get more engaged in planning their future, and the first is making a retirement plan part of your workplace benefits package.

Methodology

BrightWork Partners, a partner firm of Retirement Insights, LLC, conducted the Voice of the Defined Contribution Participant Study in July 2016 of 1,082 working adults participating in a 401(k), 403(b), or 457 plan to determine their perspective of retirement readiness. For more information about the survey, contact us at www.rricentral.com.

About the Author

John Guido, Principal at Retirement Insights, LLC

Retirement Insights, LLC is a data research firm dedicated to assisting financial services companies to competitively position their products in the marketplace and achieve their goals. We offer powerful competitive intelligence tools, reporting and consulting services specialized in the retirement and financial industries. Our expertise lies in connecting our innovative research and information with insights that help our clients make better decisions and bring practical, actionable solutions into view.