In the defined contribution (DC) world, we focus a great deal of our time and energy on plan participants. We continually ask ourselves, how can we help them make the most of their 401(k) account to achieve a comfortable retirement? Plan sponsors launch websites full of useful resources and offer professional advice and other design elements as part of their plan—and these efforts go a long way in helping the participant save more and stress less. But despite these efforts, there is one problem that affects many current 401(k) engagement strategies: They often ignore those employees who would like to save in a 401(k) but feel as though they can’t.
Schwab recently conducted a survey* that examined the attitudes and behaviors of two groups of employees: those who are currently saving in a workplace 401(k) (“savers”) and those who have access to a 401(k) at work but are not currently saving in it (“non-savers”). The findings—especially for the non-savers—were illuminating and, in some cases, pretty unexpected. For one, it became apparent that the reason many non-savers opt out of or choose not to enroll in their company’s 401(k) plan has nothing to do with the value of such investments. Forty percent, in fact, consider a 401(k) a “must-have” benefit, and 59% would think twice about taking a new job without one. So why aren’t they utilizing this benefit?
A closer look reveals a sobering picture. Many in this group have no money left over at the end of the month (30%) or are actually behind on bills (15%). Moreover, this group’s respondents said, by an overwhelming margin, that the one thing they would change about their past financial management would be to accumulate less debt. To someone who is mired in debt and struggling to make ends meet each month, it might seem impossible to find any part of their paycheck to earmark for retirement—especially when retirement may seem like a faraway issue, a bridge to cross when they get to it. The truth is, however, that preparing now and setting aside a little bit each month could make saving in a 401(k) more doable than they think.
Financial Wellness Starts at Work
So what can employers do to help their work force get a better handle on their finances and work toward long-term saving strategies? For one thing, they can introduce financial wellness programs, designed to outfit employees with tools, education and resources to help them develop skills such as navigating their personal finances, creating a budget and designing a saving strategy.
Some 77% of the non-savers in the Schwab study say they would use a financial wellness program if it were offered by their employer. This is a telling sign that these folks need and want help to take control of their finances. Getting employees engaged with financial wellness programs can be a critical first step in helping them understand that they can save for the future—even before you make formal efforts to get them saving in the company 401(k) plan. Once they understand how to prioritize bills, debt payments and other obligations, they may find a reasonable way to also put funds away for the future.
At the end of the day, employers have a vested interest in reducing their employees’ stress about money. The survey found that 30% of non-savers have experienced financial stress that affected their job performance. Providing tools and resources to help with these challenges is one way to be good to your employees while also helping them focus more on their work while they’re on the job.
The Mandate Is Clear
One of the biggest surprises about the Schwab survey was that more than half of the non-savers—again, those who have access to a 401(k) but do not currently contribute to it—actually had in the past contributed to one. And more than half of the people in that subgroup reported that their old 401(k) account is their largest or only source of retirement savings. One might guess that if they’re not currently saving in that or any 401(k) plan, they might not be saving for retirement at all. As we know, you get only one chance at saving for retirement, so the earlier you start, the easier it tends to be in the long run.
With all of this in mind, employers should understand that they can play a sizable role in helping their staff make sense of their current financial situation so they can keep an eye on their financial future. The mandate for financial wellness is clear, and it makes sense to think of it as a prerequisite for other 401(k) engagement strategies. Remember, it may just be the people who aren’t saving who need that help the most.
*2017 401(k) Participant Survey conducted by Koski Research for Schwab Retirement Plan Services, Inc. Koski Research is not affiliated with Schwab Retirement Plan Services, Inc.
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