Engaged Participants Also Need Help

March 12, 2013 (PLANSPONSOR.com) – When it comes to retirement planning communication, plan sponsors must remember to lend a helping hand to disengaged and engaged employees alike.

It is equally as important for employers to place emphasis on communicating with employees enrolled in the retirement savings plan as it is to engage non-active and new employees, according to Manning & Napier’s white paper, “Increased Savings: The Best Risk Management Tool in the Retirement Readiness Equation.”

Participants that proactively enroll in their employer’s retirement savings plan likely recognize the importance of saving, and engaging with currently enrolled employees allows employers the opportunity to pass along valuable information to help motivate participants to potentially increase their savings rates, the paper said.

But it’s easy for participants to delay increasing their savings rates in order to tend to what they consider more urgent responsibilities, such as paying for housing, food and student loans. These types of financial pressures have been a mainstay in participants’ lives and are likely a major reason why average contribution rates to defined contribution plans have remained low, ranging from 4.2% to 5.6%, among non-highly compensated participants over the past 20 years, the paper said.

Plan sponsors should target different age groups instead of using a blanket communication tactic, Mary Moglia-Cannon, JD, senior analyst and portfolio strategist at Manning & Napier, told PLANSPONSOR. In addition, plan sponsors may want to consider basing communication around life events—for instance, a young employee might be getting married or buying his first home, whereas a middle-aged employee may be paying for a child’s college tuition (see “Targeting Generational Issues in Retirement Education”).

“We think plan sponsors are thinking about [communicating with employees] more than they ever have,” Moglia-Cannon said.

When it comes to communicating with engaged participants, plan sponsors can also:

  • Promote the use of voluntary automatic escalation features to combat savings rates that have not been increased over the years. Even highly engaged participants may set their initial contribution rate and fail to revisit the decision often enough as the demands of daily life get in the way, the white paper said. Features that make it easier for participants to automatically increase contribution rates whenever they receive salary raises or bonuses can have similar effects on savings rates.
  • Alter employee match provisions to encourage higher savings rates. Participants commonly contribute only the minimum amount necessary to receive the full employer matching contribution. Because the employer match is a key motivator for participants to contribute to a retirement savings plan, employers should consider stretching the match to a higher percentage of pay. For example, the typical match of $0.50 per $1.00 up to 6% could be restructured to $0.25 per $1.00 up to 12% of a participant’s salary, at no additional cost to the employer. It’s becoming increasingly common to restructure the match, Moglia-Cannon said.
  • Provide employees with helpful tools and tips. Arming participants with tools that help them better understand whether or not they are on the path to retirement success can be useful in changing participant behavior and improving retirement outcomes, the white paper said.
  • Provide holistic assessments of participants’ financial wellness. Plan sponsors are recognizing that participants need help with overall financial planning, not just guidance with their 401(k) account, the paper said. Plan sponsors should consider offering employees a broad range of educational products and services—from the introduction of basic finance-related concepts to help them make better decisions in the future, such as the importance of maintaining a good credit rating, to more personalized solutions such as insurance and estate planning.

More information about the white paper is available here.