Reaching Retirement Readiness
Research and surveys find many employees are woefully unprepared for retirement. Why should HR be worried about employees' financial well-being, and what can it do to help them put aside the funds that will lead to a comfortable retirement?
By Lin Grensing-Pophal
Recent research from Willis Towers Watson reveals what many employers already know: most employees are ill-prepared for retirement. Their inability to retire in a timely fashion was identified as the top risk for nearly six in 10 plan sponsors, according to Dave Suchsland, a Philadelphia-based senior retirement consultant at Willis Towers Watson.
What drives organizations' concern for employee retirement readiness?
"I would point to a couple of issues," says Suchsland. "One is from the productivity standpoint. If you've got employees with financial or other physical or emotional issues, they're going to be distracted and less productive at work than they otherwise would be. We have students that show that the more financial issues a person is struggling with the less productive they will be at work."
Another issue, experts say, is workforce management. It's no surprise that the economic decline that hit hard in 2008 has kept many baby boomers in the workforce long past the time they had originally planned to retire. That means fewer opportunities for the generations behind them. "If people can't afford to retire, it will make fewer opportunities available," says Suchsland.
And ensuring that employees are financially prepared for retirement can provide a competitive edge for organizations, says Alan Vorchheimer, a principal in the wealth practice at Xerox HR Services, based in New York. He points to financial well-being as a driver of overall employee satisfaction. "If people don't have enough assets to retire," he says, "it starts creating other issues in terms of stress and morale and things that employers would like to avoid."
Much of the problem related to low participation rates has been compounded because of a shift from defined-benefit to defined-contribution plans over the past several years, says Suchsland. "When we were all [defined benefit], when most plan sponsors had a DB, or pension plan, there was a safety net that people had. Now that it's all [defined contribution] in most organizations it requires employees to have a little more financial acumen about contributing the right amount of retirement and about investing that money."
Vorchheimer agrees. "When you had defined benefit plans you knew the outcome," he says. "If somebody is here 30 years we know what kind of benefit they'll get -- it was almost ensured. Not in the defined contribution world. There's no assurance [there]."
Finding the dollars to contribute can also be a challenge, Suchsland says. Many baby boomers, poised on the retirement precipice, are realizing that they haven't put aside enough to make them feel comfortable. Many millennials are saddled with student debt and struggling to find the dollars to put into their 401k plans. And, Suchsland says, "if they've got high credit-card debt or high interest rates on their student loans, they might be better off using those dollars to offset the debt than putting in into a 401(k)."
It's an important issue for employers and one that they and their HR advisors are monitoring closely. According to the aforementioned Willis Towers Watson survey, which was based on responses from more than 300 U.S. retirement plan sponsors across a variety of industries, the percentage of DC plan sponsors that prioritize benefit adequacy will more than double in the next two years, from 18 percent to 38 percent.
HR, says Suchsland, is beginning to play a bigger role in addressing employees' financial well-being needs. "They've been dealing with physical and emotional well-being issues for the last decade or two," he says. They've positioned themselves as a trusted resource in these arenas and are now moving into the financial realm, recognizing the impact that financial concerns can have on productivity and workforce management.Â "It's hard to identify but they realize there is a payoff for having a workforce that has fewer financial issues," he says.
One of the biggest challenges that HR faces as it attempts to help guide employees' financial decision-making around their retirement planning is building trust. While employees have become comfortable with HR in a role of providing health risk assessment, many are not as comfortable with employers getting involved in their financial decisions, Suchsland says. "Employers have to build that trust over time on the financial side just as they have on the physical and emotional side."
Another issue is gaining the attention of young employees who are years from retirement. "Everything is very temporal," says Vorchheimer. "It's very hard to tell people in their 20s and 30s something like 'You'll need this much when you're 65,' because our brains just don't work like that."
Chris Bruce, cofounder and managing director of Thomsons Online Benefits, based in the United Kingdom, agrees. Globally, he says, companies are beginning to focus more on financial wellness to ensure that employees are better informed and able to make more educated decisions. But, he says, a fundamental challenge is that the topic is simply boring.
"Nobody, up until they're getting closer to retirement," he says, "is interested in talking about retirement."
Even those closer to retirement can be difficult to engage in meaningful ways. "People spend less than an hour on this a year," says Vorchheimer. "Generally, education has proven to be very difficult to move the needle on."
For most employers, says Suchsland, success in this arena is going to involve a multi-pronged approach. One of the first steps, he says, should be helping employees understand everything that is currently being offered, and the value of it. Then, education around the financial choices they have and the impact of those choices is necessary so employees know how to make decisions about the best place to put their money.Â
Communication is a must, says Bruce. Communication must be creative and resonate with target audiences. He tells of an email initiative one client undertook to connect with 25 to 30-year-old males who are notoriously not that interested in retirement messaging.
"They wanted to create a 'water cooler moment' where they could get these employees talking about retirement at the water cooler -- that's a big achievement, particularly if you're a tech company," he says.
Their approach was based on the innate competitiveness of males in this age range -- particularly around salaries. With a focus on getting employees to increase their matching schemes, targeted emails went out to employees who weren't maximizing the matching scheme for retirement, signed by the HR director with a message indicating that the person sitting next to them was earning more. In not taking up the matching scheme they weren't maximizing what the company would pay them. "It worked," says Bruce. Participation at the maximum matching scheme level, among this cohort, increased from about 30 to about 80 percent.
The key, says Bruce, is to communicate through "very, very simple terminology."
Still, the challenge is significant. To boost the numbers, many employers are turning to more direct methods of boosting participation, such as auto enrollment. Employees are becoming increasingly accepting of needing to opt out of plans that they're automatically enrolled in at a certain level, and employers are doubling down.
"Someone said to me the other day that 6 percent is the new 3 percent," says Vorchheimer. "It used to be where a lot of plans would just enroll someone at 3 percent, not necessarily escalate and they would just stay at 3 percent forever."
But plans are becoming more aggressive, he adds, with 6 percent becoming more the norm and auto-escalation at 2 percent rather than 1 percent.
"That's probably, by far, the biggest lever that organizations have used," he says, "just because it's the only thing that really seems to make a difference."
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