Sponsors: Retirement Plan Trends to Watch in 2018. A recent article in the Central Penn Business Journal spotlighted retirement plan benefits trends that sponsors should watch for in 2018. In sum, the more things change, the more they stay the same. These trends won’t likely come as a surprise for employers who’ve been paying attention, but they’re good reminders nonetheless.
The “too long, didn’t read” version: sponsors are ramping up benefits education efforts and increasingly empowering employees to take charge of their healthcare and retirement savings. They’re doing this in a variety of ways, including:
Continued uptake in auto-enrollment and auto-escalation features in retirement plan design: It’s no secret that Americans are woefully under-saved for retirement. In fact, the Central Penn Business Journal article cites a study from the Government Accountability Office, which found over half of Americans 55 and older don’t have enough saved to retire.
In an effort to help combat the inertia of many employees — who, left to their own devices, often may not choose to participate in employer-sponsored retirement plans — many employers have opted to automatically enroll employees into the plan. The typical default rate is 3% of pay — enough to prevent employees from opting out — but not enough to get them to their savings goals.
That’s where auto-escalation comes in. From the Central Penn Business Journal article: “Employees should be saving between 10 and 15 percent of their annual income in order to achieve desired retirement outcomes… [auto-escalation] increases the employee contribution percentage over time. A typical arrangement might be a 1 percent annual increase, with a cap at 10 percent of pay. Employees can opt out at any time, but studies show that this is rare — once employees develop a habit of saving, they are likely to stick with it.”
More pervasive access to financial wellness programs: Americans are chronically stressed about their finances, and it’s impacting their performance at work. Thus, employers with a vested interest in improving the financial well being and productivity of their workforce are investing in financial wellness programs. These programs take a holistic approach to employees’ financial lives, offering them education and advice on everything from paying down student loan debt to budgeting to saving for retirement. Happier, less stressed employees make for better productivity and performance at work — a win-win for workers and employers.
An increasing integration of health savings accounts (HSAs) with retirement savings: This dynamic duo packs a powerful punch when it comes to helping employees supplement their retirement savings while setting money aside to deal with future medical and healthcare costs.
HSAs offer a multitude of benefits, including a triple tax advantage: tax-deductible contributions, tax-free earnings on the investments inside the account, and tax-free withdrawals if the money is used for qualified medical expenses. And here’s a bonus: savings that aren’t used for medical costs can be withdrawn tax-deferred at retirement. Traditionally, HSAs and retirement plans have been treated as two separate, siloed benefits, but they can be used effectively in tandem to help employees save more toward their future, whether to help fund medical costs or their retirement lifestyle.
The onus is increasingly on today’s workers to take charge of their savings, whether it be for retirement, healthcare, or another goal for the future. However, as an employer, you have the opportunity to provide your employees with the necessary tools and education to help them make the most of the benefits available to them at work and create better outcomes during their careers, into retirement, and beyond.
