There once was a time when preparing employees for retirement meant throwing a going away party. You’d grab a few gifts, order a cake and you’ve done your part. But today, there’s much more for employers to consider.
As times change, organizations must adapt to help employees reach their retirement goals. From new hires fresh out of college to individuals more seasoned in their careers, retirement planning is an ongoing process and the tools and resources may vary depending on the organization’s demographics. Regardless, planning and education for retirement needs to begin the day an employee walks through the door, with consideration for wherever they may be in their career and retirement funding journey.
Today’s workforce can include four or even five generations working side-by-side, with different retirement savings challenges. Recent graduates face challenges in saving and planning for retirement as they focus on repaying loans, workers with retirement savings in employer-sponsored plans may be unsure if they should transfer these funds when they begin a new position, and there are numerous workers over the age of 50 who haven’t begun saving for retirement.
When it comes to 401(k)s and retirement planning, the current perspective is that it’s important for employers to help employees as much as possible. However, a study conducted by Arthur J. Gallagher & Co. found that “while 78 percent of employers offer a retirement program, only 37 percent take steps to measure employee retirement readiness.” Employers are in a position to help employees develop their retirement goals, help them realize the importance, and equip them with the necessary tools they need to thrive in retirement. By doing this, employees will thank you both now and later. While there are many methods to help your employees prepare for retirement, consider contributions, offering tax savings and educating employees.
While there are many methods to help your employees prepare for retirement, consider contributions, offering tax savings and educating employees.
Contribute
If your company can afford to, offer 401(k) matching to your employees. This encourages employee participation and shows them that you’re invested in their retirement. Common structures include employer matching contributions, often based on a percentage of the employee’s salary or deferral, or a specific amount to contribute to each employee. Employers are encouraged to explore and utilize intelligent plan design features, such as auto enrollment and auto escalation, to further enhance the retirement plan benefit. Auto enrollment automatically enrolls employees in the plan (once eligibility is met) at a contribution amount specified by the plan document. Auto escalation allows the employee to automatically have their contribution increased annually, until they reach their contribution rate goal.
Offer HSA accounts
One of the best things your employees can participate in to add to their retirement strategy is through contributions to their Health Savings Account (HSA). This applies to employees enrolled in a high deductible health plan (HDHP). The HSA savings account was created to cover medical expenses either now or in the future. Both employees and employers may contribute up to an annual maximum, which is indexed annually via inflation. Research conducted by the Employee Benefit Research Institute found that some couples may need $370,000 for medical expenses during retirement. Yet, only a small fraction of the population has prepared and saved money. HSAs allow individuals to save money for the unexpected.
While this is a big benefit, many people don’t understand how powerful HSA accounts can be when leveraged correctly. HSA accounts can potentially provide the benefits of a Traditional IRA and Roth IRA account because employees are able to contribute pre-tax dollars, while having the ability to take advantage of tax-free growth and distributions. They can be thought of as an emergency stash for your employees’ medical fund as well as a great investing tool.
Educate employees
There are many ways to educate employees about retirement. You can host a lunch and learn where employees can chat with the human resources department or the appropriate representatives about general retirement planning. Structured activities can also be developed, including guest speakers, webinars, and staff meetings focused on retirement.
Some employees may not have the time or resources to speak with a financial advisor. Bringing in an expert who specializes in employee retirement to cover topics that interest your team is very beneficial. Ideally, the expert will hold brief, individualized meetings with employees to discuss their goals and objectives. Seminars and workshops can be helpful, with content that is relevant to the ages and knowledge of your workers.
These three methods are contributors to an employee’s retirement readiness and their ability to enjoy the next phase of their journey.