Doubling down on ongoing benefits-focused financial education for employees

Americans now feel they need a record $1.46 million of savings to retire comfortably, a 53% increase from 2020. However, almost half of U.S. households had no savings in retirement accounts, according to the 2022 Survey of Consumer Finances (SCF), the last year the data was released. This trend is not new, but it is worsening to an alarming degree. Americans are neither saving enough for retirement nor taking full advantage of their workplace benefits.

To their credit, employers have recognized the need to better support their employees. According to a recent study conducted by Transamerica Institute, 72% of employers feel responsible for helping their employees achieve a financially secure retirement. In addition, more than 6 in 10 employers (62%) re-evaluated their health, retirement, and other employee benefits offerings in 2023, indicating they did so to make them more competitive, among other reasons.

Employers have rolled out new solutions to help Americans take control of their retirement savings and health care, improve their overall financial wellness, and ultimately create better retirement outcomes. Some of the most promising solutions include:

• Emergency savings funds (ESFs): When employees face a financial emergency or hardship, they often withdraw funds from their 401(k) to cover the expense – thereby incurring steep fees and penalties. ESFs allow employees to set aside funds for emergencies without tapping into their retirement savings. Additionally, 81% of employers offering ESFs have seen a positive return on their investment, with ESFs helping alleviate employee financial stress, increase job satisfaction, boost employee productivity, and increase retention.
• Health savings accounts (HSAs): For individuals utilizing a high deductible health care plan, HSAs offer three tax advantages: (i) both employee and employer contributions are made on a pretax basis, (ii) accountholders earn nontaxable investment gains, and (iii) they can withdraw funds tax-free for qualified expenses. In addition to using an HSA for medical expenses, it can also be used as another way to save for retirement. Once the accountholder turns 65 years old, that individual can withdraw money from their HSA for any reason, but the accountholder must pay income taxes for HSA funds used on non-eligible medical expenses. This is an effective, tax-advantaged way to pay for health care expenses now while also saving for the future.
• Student loan reimbursement: Legislation recently passed at the federal level, specifically the SECURE 2.0 Act of 2022, allows employers to make a matching contribution to workplace retirement accounts based on their employees’ qualified student loan payments. The policy aims to help Americans avoid the difficult choice of either using their money to repay student loans or save for retirement.

These and other solutions can make a real impact on Americans; however, a question remains — why do we continue to see an escalating retirement savings crisis?

Part of the answer is that only 73% of civilian workers have access to an employer-sponsored retirement plan, meaning more than 38 million working adults have been left entirely on their own to figure out how to prepare for retirement. This is particularly true for smaller employers with less than a couple hundred employees, where administering a retirement plan has not been a priority or was deemed too costly or resource prohibitive. But that dynamic is changing.

Many states have mandated that employers offer retirement plans, created new tax incentives for offering a plan, and more. Additionally, industry players, particularly earlier-stage and startup companies, are now focusing on providing fully digital, highly scalable retirement plan solutions to smaller employers that historically have been reluctant to offer a plan to their employees.

Another part of the answer to why the retirement savings crisis is worsening is hinted at by worker participation in employer-sponsored retirement plans. Only 56% of workers are participating. That means nearly half of employees fortunate enough to have employers who provide benefits to help them save — often with matching contributions — have not taken advantage of these benefits. This could suggest that employees don’t fully understand the value of the benefits being offered.

The onus should not be on employees exclusively. On top of the complexities of their jobs, families, and more, we are asking employees to make sense of an industry that can confuse even experienced industry insiders. Employers must share part of the responsibility. Based on current participation rates and savings levels, we can safely assume not enough is being done to help workers make sense of the benefits available to them.

Employers should feel the urgency. Greater participation in retirement and benefits plans yields higher employee engagement, greater retention, recruitment, and productivity outcomes, and overall business growth. And yet, employers often do the bare minimum.

What’s needed are more holistic, strategic, and thoughtfully planned employee engagement programs. Employers need more frequent and continuous benefits education throughout the year, and not just during open enrollment. Additionally, employers can’t just focus on helping people with what they need today, focus also needs to be on how people can use their benefits package to help them save for what they need tomorrow.

Based on my work at Inspira Financial with thousands of employers across America, top-performing organizations focus on several key action items to increase engagement and produce better outcomes – for both employers and employees:

• Be holistic. It’s not clear to many American workers how their HSA can contribute to their overall retirement plan, which may also improve their investment strategy. Additionally, most employers often communicate about each of those things in silos. For example, most people know HSAs are tied to one’s health care plan. However, fewer know that, because of their tax-advantaged status, HSAs may also function as an incredibly effective investment and retirement savings vehicle.
• Be consistent. Don’t just engage during open enrollment. It can be overwhelming for employees to receive so much information, about every single benefit offering, in such a short time. Instead, create always-on employee training and communications to help workers receive a steady flow of smaller bites of information throughout the year to make open enrollment less intimidating. The employee demand for consistent communication is growing. According to a recent EBRI survey, 7 out of 10 employees want to hear from employers outside of open enrollment about their benefits packages.
• Consider multi-channel and multi-format communications. Employees no longer just receive communications one way, and people learn differently. Communicate about benefits via a blend of formats, including email, text, video, and audio, and utilize internal communications channels and opportunities to connect in-person or virtually to field questions and receive in-the-moment feedback. That feedback can then help inform future communications about employee benefits, making them more informative and effective.

Related: Employees want financial wellness but what are they really asking for

• Emphasize that employees have skin in the game. If employees feel they might leave money on the table, they will engage and act more readily. By providing matching contributions and clearly communicating about their value, employers can drastically increase employees’ participation and engagement with their benefits.
• Auto enroll. The improved outcomes from auto-enrollment in retirement plans, like 401(k)s, have been well-documented. By simply making enrollment something one needs to opt out of, we have seen drastic upticks in participation. One lesson learned from this is to make it easy for employees to get their “foot in the door.” Once they do, they will be more likely to engage with the benefit and tailor it to their needs. We just need to help them take the first step.

I welcome all employers to join the call to address the widening gap between what people are saving now and what they will need for retirement. It’s a complicated problem that will likely require systemic changes. However, if employers take these small, meaningful steps to improve benefits-focused financial education — simplifying the complex into something achievable and encouraging employees to learn and take action – we can improve countless lives and futures.