2024 outlook for plan sponsors: Do your retirement offerings work for all employees?

Plan sponsors need to take a fresh, holistic look at strengthening the strategic value of their retirement offerings, including improving financial resilience for those employees who are struggling in the current climate, experts said in a recent webcast from WTW.

The webcast, which featured WTW experts, examined the company’s outlook for defined benefit plans and the effect of universal cost pressures on employee well-being and retirement plan management. Speakers in the webcast tackled a variety of critical questions related to retirement planning today, including – as Alexa Nerdrum, managing director, benefits, advisory and compliance at WTW North America, summarized it – “How can we address affordability through plan design, while still balancing the legacy costs that some of us on this call are still dealing with? Or how do we ensure that our benefit offerings are meeting people where they are? How do we ensure we have the right information to support our need to focus on outcomes? And then lastly, how do we ensure optimal alignment with our total rewards offering?”

Beth Ashmore, managing director of North American retirement at WTW, noted that the interest rate environment has been volatile in recent months, leading to a roller coaster ride of financial conditions. She said it is important to recognize that a much improved inflation climate doesn’t mean that issues related to costs don’t remain, she said.

“While it’s good that the prices aren’t going up, we definitely still have to accommodate the fact that prices are high and that has an effect on employee financial resilience,” Ashmore said. “So a lot of employers are asking that question of ‘what can we do?’” particularly given that the workforce is fresh off a period referred to as “the Great Resignation.”

Gregg Levinson, senior director for retirement at WTW, discussed themes related to how employers can help their team members be financially resilient against a backdrop in which “we’ve transitioned in the health space from mostly employer-provided health care to high-deductible health plans – not entirely, but for the most part. A lot of employees are now shouldering that burden, and have to fund HSAs and other types of employee-funded health care. On the retirement side, [it is a] similar thing where we’ve gone from core defined benefit with supplemental defined contribution to primarily defined contribution.”

For “a substantial minority of the population,” that transition has led to increased financial struggles and risk, Levinson said. He said that WTW has seen in its studies that 40% of plan participants have demonstrated a financial risk indicator, such as taking out a 401(k) loan, making a hardship withdrawal or failing to commit retirement savings to the maximum employer match.

Employers are aware that their team members are contending with financial stressors and “gaps,” including being unable to save for retirement because of other issues, Levinson said.

“You may see it in terms of absenteeism,” Levinson said. “In manufacturing organizations, it could be increased accidents, because they’re tired, they’re stressed and they’re making mistakes. We see it in people looking for other jobs.”

A financial resilience program can help improve the retirement readiness of those who are struggling, but organizations also have to consider what their retirement program and health programs can do to support them, too, Levinson said.

Alan Silver, senior director and financial, actuarial and analytics intellectual capital leader, said that it has become increasingly clear that high-deductible health plans do not work well for a portion of workers.

“We have to get a little bit away from this concept that high-deductible health plans are a financial resilience vehicle and start to understand that might be true for some of our population but for others that are at risk, maybe we need to find a different alternative,” Silver said. “Maybe we need to find a different solution that allows them to protect their dollars now so that they can save them for the future. And that’s something we’re really going to focus on a lot in 2024.”

Megan Glaser, senior director, retirement at WTW, said the moment is a key one for retirement planning.

“It does strike me that many of our clients, regardless of what industry they sit in, are at this inflection point where they’re stepping back and revisiting how they deliver on their employee value proposition when they have such a diverse workforce with diverse needs,” Glaser said. “And so part of that is rethinking whether their current retirement programs and how they manage and deliver those programs are a fit for today and for the future.”

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It is clearly in an organization’s best interests to consider their retirement offerings and how well they are doing what they are intended to do – for all team members.

“How do we make sure that we’re getting and maximizing the value of our retirement investment or total benefits investment relative to what we’re doing out in the marketplace?” Ashmore said. “So are we differentiating our overall program designs effectively with what we need to do from an attraction and retention perspective so employees understand and appreciate the value of our program? I think that’s kind of the lens and the questions that employers need to ask now.”