Retirement plan advisors – did you know that almost 49% of plan sponsors don’t know they are a fiduciary to their company’s retirement plan?[1] Is it lack of knowledge? Your fellow peer advisors aren’t providing fiduciary education. Plan sponsors are juggling too many responsibilities from payroll to management. Essentially, many plan sponsors are asleep at the retirement plan wheel, and this needs to change.
Unfortunately, plan sponsors are not paying enough attention to the direction and outcomes necessary for a successful retirement plan. Fiduciary awareness is fading, and participants might be suffering because of this.
With more than 75% of employees living paycheck to paycheck and another 25% claiming that personal finances are a distraction at work, retirement plan advisors are facing an epidemic to provide meaningful financial wellness solutions to plan sponsors and their participants. [2], [3]
It’s time for advisors to push plan fiduciaries to be bolder when it comes to helping plan participants prepare for retirement. If the retirement plan does not already include beneficial plan design features such as auto-enrollment, re-enrollment, or auto-escalation, it is time to sit down with your plan sponsors and discuss which options might best suit their organization. Integrating just one of these features to their company’s plan has been shown to increase participation and, in the long-term, can help their employees retire confidently.
Auto-enroll features have shown increases of participation rates from 57% to 92%.[4] Plan fiduciaries need to be bolder and implement auto-enrollment. Nudging plan sponsors to encourage employees to save now could save their company hundreds of thousands of dollars in the future due to the increased cost of employing older employees (increased health insurance premiums, higher wages, and higher likelihood of workman compensation).
Retirement is the longest period of unemployment most participants will ever encounter. To save enough to replace their paychecks, most retirement plan professionals recommend an annual savings rate between 12 – 15%. However, most employees are not saving enough. Implementing an auto-escalation program might be able to stretch employees over time to achieve meaningful savings. Additionally, once employees are enrolled in an auto-escalation program, 71% of employees remain in them.[5] Auto-escalation of even 1% more a year is helping plan participants get closer to their retirement goals.
Reaching out to the employees that have opted out of saving in the past with re-enrollment options can help boost participation rates. It is possible their financial priorities shifted from saving for retirement, but your plan sponsor has the ability to guide them back towards saving for their retirement future. If a plan sponsor anticipates pushback from employees, make sure you have a communication plan set in place before implementing this.
Does the retirement plan still contain employees that are no longer at the company? Help plan sponsors clean up their plan! First, identify those former employees and remove them from the plan by implementing either an automatic force-out provision or automatic rollover solution. Then going forward, add an auto-rollover feature to address future employee turnover.
Advisors, are your plan fiduciaries still not convinced these measures will benefit them? Well, personal financial stress on employees is shown to decrease their productivity and cost the COMPANY money. Let’s look at these numbers:
Share with them this 1,000-employee company as an example. Based on the statistics above, 300 of those employees are distracted by their personal financial issues at work. We can then assume that 138 of those employees are spending at least three hours a week dealing with their personal financial concerns. If the average full-time employee works 46 weeks a year and earns about $17.24 hourly.[6] This would mean that their company is losing $328,318.56 a YEAR. Which is why, it is important for your plan fiduciaries to address saving for retirement, while taking these bold plan design actions that seek to nudge their employees to save for their future.
Plan fiduciaries need to wake up and take ahold of the retirement plan wheel. It may feel unnatural and unconventional, but reassure them that they are doing what is best for their employee’s future and for their company’s bottom line. It’s a win-win strategy.
[1] AllianceBernstein. 49% of Plan Sponsors Don’t Know They Are a Fiduciary. 2017.
[2] Career Builder & Harris Poll National Survey. “Paycheck to Paycheck: A Way of Life.” Aug. 2017.
[3] PricewaterhouseCoopers LLP. “Employee Financial Wellness Survey” (2018): PWC. May 2018.
[4] King, Martha. “How America Saves 2018: Telling the Retirement Story with Data.” June 2018.
[5] Clark, Jeffrey W. and Jean A. Young “Automatic enrollment: The power of the default.” Vanguard Research. February 2018.
[6] PwC, “Special Report: Financial stress and the bottom line,” September 2017.