Help employees catch up on retirement savings? It’s a balancing act
Plan sponsors offer strategies for helping participants who have fallen behind on saving for retirement but warn there is a fine line between helping and intruding.
Employees have many reasons for falling behind on their retirement savings. Recently, an increasing cost of living, student debt and low salaries are cited as the primary factors creating obstacles to retirement savings, according to plan sponsors surveyed by TIAA and C Space for the “TIAA Pulse Survey; Playing Catch-up” study.
Plan sponsors who responded to the survey also pointed to an increasingly prevalent attitude of kicking the retirement can down the road for some employees who are more focused on current expenses or things they want to spend their money on now, believing they can adequately catch up on retirement savings later.
One plan sponsor said they are looking forward to implementing the student loan matching provision of SECURE 2.0 when it goes into effect next year to combat the student debt obstacle to retirement savings, especially for young participants who often have smaller salaries to begin with. The provision will allow employers to make a contribution to a participant’s retirement plan to match that participant’s payment on a qualified student loan.
For now, plan sponsors are using several strategies to keep employees on track with their retirement savings, or catch up if they’ve fallen behind. Successful anecdotes include everything from providing graphical depictions of the value of saving for retirement to providing one-on-one education opportunities with plan advisors.
Education about topics such as budgeting is one key strategy plan sponsors highlighted, especially when it can be personalized to an employee’s specific situation.
“Meet people where they are and explain real-world examples that are reflective of everyday life,” said one respondent. “In practice, it means telling an individual to cut out the coffee every day. That money will go a long way.”
Literally showing participants how short they actually are on their retirement savings path is a good motivator, plan sponsors said. Respondents mentioned sitting down with individuals and ‘doing the math,’ breaking projections down into simple terms, providing models of how different strategies will result in more or less retirement income, and highlighting what the employee can still accomplish toward their retirement planning regardless of where they are in their career.
However, the survey noted that there is a fine line between helping employees catch up and being intrusive or condescending.
“There is a delicate balance between providing appropriate information to all employees and potentially intruding in their personal financial lives,” according to one plan sponsor. “Hence we do not modify communications based upon the amount saved.”
Meanwhile, some plan sponsors think it’s outside their scope of responsibility entirely to provide specific help to participants who have fallen behind, and others noted they lack information on their participants’ retirement savings anyway.
Related: SECURE 2.0: Big changes to 401(k) catch-up contributions in 2024
“We provide access to external advice, but don’t try to judge whether any particular participants are ahead or behind,” said a respondent. “We just don’t know what’s in their full portfolios nor their broad approaches to retirement.”