It can be challenging to convince all employees to participate and contribute to their individual retirement plans in a way that allows them to reach their maximum retirement potential. In fact, Pew’s recent survey of workers found nearly one-third would opt out of their company’s retirement plan due to an unwillingness to sacrifice current quality of life.
However, research also shows that retirement plan sponsors can help improve both employee participation and saving rates with a few relatively simple strategies.
Here are four ways you can help your employees start building toward a more confident retirement:
- Boost employee participation with automatic enrollment. Choosing to automatically enroll all new employees in your retirement plan can dramatically improve your participation rates. In fact, according to a recent study focused on automatic enrollment by the Center for Retirement Research (CRR) at Boston College, participation increased by 50 percent, with the largest gains among younger and lower-paid employees. While auto-enrolled employees are allowed to opt out of the retirement plan, most tend to stay enrolled.
- Increase the initial default contribution rate. Many companies who use auto enrollment set their default contribution rate at 3 percent, according to the CRR—a rate that’s lower than the typical employer-match rate of 6 percent. Many workers who might have contributed more to their savings passively accept the lower default rate, which means they’re sacrificing employer matching funds along with saving less of their own pay.
- Consider adopting auto escalation. Plans that use auto escalation automatically increase their participants’ contribution rate every year, typically by 1 percent. Over time, that can significantly improve savings rates among workers. The CRR, for example, cites a 2013 study of Danish workers, where the majority of workers who experienced automatic increases accepted them, and savings rates dramatically increased.
- Automate investment decisions with target date investment products. Investing is complicated, and many employees don’t want to take the time to learn how to manage their portfolios. Target date strategies automatically adjust an employee’s investment allocations over time, shifting them to a more conservative asset mix as the target date (typically retirement) approaches. The simplicity of target date funds means their popularity is increasing. The CRR notes that in 2014, nearly 20 percent of all 401(k) assets were in target date funds, and about half of plan participants used target date funds.
Curi members, clients, and other healthcare organization plan sponsors interested in learning more about these tips or Curi Capital’s Retirement Plan Solutions offering can read more here or connect with our Curi Capital team by calling 984-202-2800.
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