Ah yes, saving for retirement. It’s a necessary evil that people tend to put off until it’s crunch time. Your employees are probably no different: procrastinating their way to a smaller nest egg for their golden years. The reasons behind many employees’ failure to save is surprisingly not that they can’t afford to save or don’t realize they should save, they just wait too long. Without intervention from a retirement plan investment committee these employees will continue down the path of putting off their retirement savings.
One solution that has been found to be very successful in driving more meaningful plan participation is through the addition of auto-enrollment and auto-escalation. These provisions can be added to your defined contribution 401k plan to deliver increased participation. There is substantial research done through large record keepers like Fidelity and Vanguard that describe the benefit to implementing these types of negative consent provisions. Most plan participants will go along without any fight, because they know that it is good for them and the auto- enrollment makes it easy.
The auto-enrollment feature can determine the default plan for the participants. More recently, plan sponsors have been targeting a number closer to 6% or starting with 3% and increasing each year by 1%. In order to accumulate enough money to save for retirement, plan participants need to contribute between 12-15% of their annual salary for the majority of their working lives. If participants are starting later in life, they may need to save more.
HR Resolutions is here to help. We know Benefits and Enrollment can be a tricky process and would be happy to discuss your current procedures with you as well as help you make necessary and beneficial changes.
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