How Employers Can Foster Retirement Savings
"Employers have more influence than they probably realize in creating a secure financial future for their employees. The primary focus of the plan sponsor's actions should be centered on bettering retirement outcomes for plan participants," said Patricia Advaney, senior vice president and chief marketing officer for Transamerica Retirement Solutions. "We need to move beyond traditional, one-dimensional measures such as participation or average contribution rate to measure plan success. Helping employees retire with enough income to live comfortably is the ultimate goal of any workplace savings program."
Here are five key ways Transamerica suggests an employer can help foster a community of savers for retirement in their company:
Drive employee participation in the plan and encourage contribution increases over time. Automatic enrollment can be an effective tool to increase participation rates, but often the starting default rates are too low to result in meaningful outcomes. Retirement industry thought leaders say employers need to consider automatically enrolling employees into the retirement plan at initial savings rates of six percent or higher, and then periodically increasing contribution rates to reach a minimum annual contribution rate of 10 percent. Saving 10 percent of pay annually for retirement could dramatically improve retirement outcomes for many employees.
Encourage employees to use resources that help evaluate retirement readiness. Employees need easy-to-use tools that help decide how much they will need to save for a comfortable retirement and where they currently stand in terms of saving successfully. Easily-accessible resources that allow employees to simply and conveniently project and modify their savings and investment strategies can improve employees' retirement outcomes.
Offer target date solutions that automate investment decisions. Many employers offer target date solutions within their menu of available investment choices. Target date solutions invest in a diversified mix of asset classes, and automatically shift to a more conservative asset mix according to a predetermined "glide path" as the stated target date approaches. This approach is an attractive choice for employees who may be intimidated by the process of shifting investment allocations over time, and can help keep employees' savings on track over the long term.
Use proactive communications that motivate employees to take appropriate action. Employers should consider targeted communications that address individual needs. Those not yet enrolled in an employer plan should be targeted with relevant and meaningful messages that help them to take a first step. People that actively contribute but don't save enough should be targeted with messages and easy ways to increase their savings rates. And individuals that are inappropriately diversifying their funds should receive messages about the benefits of automatic diversification solutions, such as target date funds or services.
Use leadership and centers of influence to promote retirement savings. Leaders within the organization should personally emphasize the importance of saving for retirement, setting the expectation that a secure retirement is achievable for those who save. The company's leadership can also cultivate "centers of influence" -- employees who are natural leaders among their social circles – to encourage others to join the plan and save for retirement.
Rick Meigs, President, 401khelpcenter.com