A recent survey by the Plan Sponsor Council of America (PSCA), sponsored by The Principal, found 27% of nonprofits believe they have a responsibility to encourage employees to save for retirement, and one-quarter believe they have that responsibility but would like to do more.
Aaron Friedman, national tax-exempt practice leader at The Principal, in Shelton, Connecticut, says plan sponsors that want to do more can use plan design provisions such as automatic enrollment—at a higher default percentage than 3%—and automatic deferral escalation to encourage employees to save. In addition, targeted education is very effective at getting people to save or save more, he tells PLANSPONSOR.
Half of nonprofit organizations (50.4%) that sponsor 403(b) retirement plans are equally concerned about all employees saving enough for retirement, no matter their age, the survey found. However, only 15.8% of survey respondents target their plan education materials to specific age segments.
According to Friedman, for those concerned with all groups equally, targeted messaging will reach each group, and can alleviate some of these concerns.
Friedman says targeted education should focus on different life stages at each age—from just getting started, to balancing life events and saving then getting ready to retire. For example, The Principal offers Retire Secure, providing participants with one-on-one retirement planning and financial strategy meetings at the work place or over the phone. With it, employees can look at their overall financial picture, taking into account student loans, mortgages, or care for aging parents or children, according to Friedman.
In addition, a focus on outcomes is extremely important in education. “It’s not just saying put away as much as you can, its more fine-tuned. What is your objective for income replacement, and what is the path to generate that?” he says. “The average person cannot connect accumulation with income, so we need to help [retirement plan] participants so they can better understand and prepare.”
The PSCA survey found 25% of nonprofits offer no retirement plan education at all. According to Friedman, this is not unusual in nonprofits because of the bifurcation in the marketplace between Employee Retirement Income Security Act (ERISA) plans and non-ERISA plans. With non-ERISA plans, the employer is more hands-off, and there is no education program or consistency in messaging.
However, for ERISA plans, the biggest problem with not providing any education is employees can think they are doing something that will help them be prepared for retirement, but end up at retirement being underprepared, Friedman says. “Without an education program targeted to various stages in life, the average person cannot project his needs. As a person’s career progresses, it gets too late to fix discrepancies [in savings].”
Nonprofits tend to be more paternalistic toward employees than corporate entities, and for that reason, historically they tend to offer a higher levels of benefits, Friedman notes. “That said, it’s interesting to see we don’t yet have a wide offering of auto features and targeted education among nonprofits. The larger PSCA 403(b) survey shows uptake is slower among 403(b) plan sponsors than 401(k) plan sponsors,” he adds.
However, Friedman says it’s encouraging to see the industry is moving toward outcomes-based plan design features and education to help employees be retirement ready.