Many workers might have tapped into their retirement savings or cut back on or completely eliminated their contributions due to the coronavirus pandemic. And some employers might have cut back on or suspended their matches as well. Some workers might have panicked when the markets tumbled in March and even gone so far as to take their money out of the market and been too afraid to get back in, thereby losing tens of thousands of dollars of retirement savings.
Sandy Pappa, a principal in Buck’s wealth practice, says employers are acutely aware of these setbacks and are “experiencing a lot of consternation about what to do to help employees.”
Pappa says the first thing employers should do is to figure out which employees were impacted by the pandemic and send targeted messages to them. “The first message employers should underscore is to encourage people to save in the plan,” she says. “That will impact how much retirement income they will have when they are ready to retire.”
The next thing employers need to address, for all employees, is allaying their fears over market volatility, says Elizabeth Woodburn, director in the engagement practice at Buck. “If employers don’t address this topic, employees won’t hear anything else they have to say,” Woodburn says. “Speak to them about how markets have behaved and bounced back after other crises. Recordkeepers can help you there with all kinds of statistics.”
The next thing employers should do is educate their employees about all the benefits available to them and ensure that they know where to find information about them, says Charlie Nelson, CEO of retirement and employee benefits at Voya. “Many individuals are not fully aware of all of the benefits available to them, particularly voluntary benefits such as critical accident or hospital indemnity insurance. These will give them some financial protection in case of an emergency.”
In line with that, many workers and employers alike have a newfound appreciation for the importance of having emergency savings, as well as replenishing those savings if they have been used during the pandemic, Nelson says. In fact, he says, he expects more employers will establish automatic emergency savings accounts alongside retirement plans.
Pappa says it is also important to let people know that if they took out a coronavirus-related loan, they have three years to repay it, starting in the year they took the distribution. “This will ease their tax burden,” she says.
For those employers that suspended or curtailed their matches last year and are reinstating them, that is a great message to get across to employees, Woodburn says. “This would be a great time to dangle that carrot in front of employees,” she adds.
During the pandemic, many recordkeepers waived fees for loan initiations and distributions, Woodburn notes. “Now may be a good time for sponsors to temporarily pay plan administrative costs,” she suggests.
Plan sponsors that don’t already automatically enroll or escalate their workers’ savings should consider these critical plan design elements, as well as re-enrollment, says Pete Welsh, head of retirement services at Millennium Trust.
And, if an employer is going to implement auto-enrollment, they need to automatically enroll their workers at a meaningful savings rate of 6% or higher rather than the long-accepted 3% rate, adds Sri Reddy, senior vice president, retirement and income solutions at Principal.
Workers are also looking for financial wellness programs from their employers, says Shane Bartling, senior director, retirement, at Willis Towers Watson. This is particularly true for women and minorities, who are more likely to work for small to mid-sized companies, which have been the hardest hit during the pandemic, Bartling notes. Workers are also hungering for advice from independent financial counselors, he adds.
Finally, the message to employees should be that every little bit of savings helps, and they should be encouraged to increase their savings this year and next year, Woodburn says.
Woodburn adds that plan sponsors should make the messages engaging, even if they are about dollar-cost averaging and volatility. “Make it actionable and use humor,” she suggests.
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