All organizations have a variety of strategies available to support their employees’ retirement planning, according to Sibson Consulting.
“In today’s multi-generational workforce, targeted education and communication, defined contribution auto-savings arrangements and creative match formulas are three valuable strategies for organizations to consider,” said Doron Scharf, senior vice president with Sibson.
Opening the channels of communication and customizing the messages are pivotal factors in helping employees improve their retirement readiness. “One-size-fits-all is a misnomer. Save for a few rare instances, it should be one-size-fits-few,” said Scharf. “Communications should also be easy to understand and delivered on a regular basis, beginning well before retirement age.”
Organizations can isolate and target numerous attributes for an employee’s personal communications. The figure below gives several examples.
While targeted education is designed to combat inertia, auto-savings arrangements in defined contribution plans can help ensure that employees are saving at an appropriate rate and in suitable asset classes. “Auto-savings can be a great way to help employees overcome their own natural biases against saving, but its ‘one-size-fits-all’ solution can be a drawback as it does not consider the relative financial wellness of individual employees,” said Jonathan Price, Sibson vice president and consultant. “For example, it may not increase savings quickly enough to help a mid-career employee with a low account balance get on a viable path to retirement.”
Creative Match Formulas
“Employees who find it difficult to overcome savings inertia may benefit from a contribution formula that incentivizes significant deferrals and provides a larger profit-sharing contribution,” noted Price. The table below provides an example of how these types of formula changes can increase total contributions to targeted individuals.
Looking at the larger picture, organizations should use an analytic approach to helping their employees prepare for retirement, Scharf said. He added, “Moreover, a deeper dive into plan data can help plan sponsors analyze changes in staffing based on growth, delayed retirements, unexpected early retirements and aging workforce populations to inform plan design improvements.”
Price noted that while all these strategies could work, “Every organization is unique, and a customized workforce analysis can identify the right answers to meet specific needs.”
To speak further with our consultants about the many strategies for retirement readiness, please contact me.
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