If every employee is participating in the company’s retirement plan, that’s great—but if they are saving at an average rate of 3%, retirement readiness is falling short, Patricia Advaney, senior vice president and chief marketing officer for Transamerica Retirement Solutions, told PLANSPONSOR. “[Retirement readiness is] really a combination of things, and the more comprehensive it is [the better],” she said.
Advaney discussed findings from the recent Transamerica Retirement Readiness Summit that outline an action plan for plan sponsors who want to improve retirement readiness and help employees become “super savers.”
Promote plan participation and encourage contribution increases over time. Automatic enrollment can be an effective tool to increase participation rates, but the starting default rates are usually too low to result in meaningful outcomes, Advaney said. Transamerica suggests automatically enrolling employees into the retirement plan at a rate of 6% or higher, and then automatically increasing the contributions by 2% per year—rather than the traditional 1%— to a savings rate of 10% or more.
“Automatic enrollment and automatic escalation are excellent features to get employees started in saving for retirement. But we can’t stop there,” Advaney said.
Encourage employees to use resources that measure their retirement readiness. Employees need easy-to-use tools that help decide how much they will need to save for a comfortable retirement and where they currently stand in terms of saving successfully, according to Transamerica. The company offers a retirement readiness tool called “OnTrack,” which uses weather icons (rainy, sunny, etc.) to indicate a participant’s level of retirement readiness.
OnTrack lets participants see how alternative savings or investing strategies could help change their outlook. “It helps them take stock of where they are, and the tool also will help them understand what they can be doing to improve that retirement outlook,” Advaney said.
Helping employees become “super savers” means helping them understand the importance of being engaged in their retirement savings, she added.
Offer target-date solutions. Target-date funds (TDFs) are an attractive choice for employees who may be intimidated by the process of shifting investment allocations over time, and they can help keep employees' savings on track over the long term, according to Transamerica.
If the company’s demographic is unique, Advaney said employers may want to consider custom TDFs, but she said many great off-the-shelf TDF options exist (see “EBSA Offers Tips for Selecting TDFs”).
Use proactive communication. Transamerica suggests employees consider targeted communications that address individual needs. Those not yet enrolled in an employer plan should be targeted with relevant, meaningful messages that help them to take the first step. In addition, participants who actively contribute but don't save enough should be targeted with messages and easy ways to increase their savings rates. And individuals that are inappropriately diversifying their funds should receive messages about the benefits of automatic diversification solutions, such as target date funds or services.
Use leadership and centers of influence to promote retirement savings. Leaders within the organization should personally emphasize the importance of saving for retirement, setting the expectation that a secure retirement is achievable for those who save, Transamerica suggests. The company's leadership can also cultivate "centers of influence"—employees who are natural leaders among their social circles—to encourage others to join the plan and save for retirement.