Industry Voices

Taking Your Plan (and Participants) to the Next Level

More employers are starting to enhance financial benefits, through automatic enrollment, health savings programs, or other financial wellness initiatives, notes Rick Irace, chief operating officer, Ascensus Retirement.

By PS | May 24, 2017
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There’s no doubt Americans are having trouble saving enough money for retirement. A 2016 survey found one in three Americans has saved nothing for retirement, and 50% of Americans have saved less than $10,000. These numbers present a challenge for plan sponsors to get participants to not only start saving for retirement, but to also save enough.

Traditionally, plan sponsors were viewed solely as gatekeepers to the company retirement plan, but today’s sponsor plays a much larger role in the retirement planning picture. Now more than ever, plan sponsors are expected to wear multiple hats, as they must evaluate the financial health of employees while consulting, coaching, and promoting responsible saving habits for participants’ financial wellness.

Below are the biggest challenges plan sponsors face in today’s environment, as well as how they can embrace their growing list of responsibilities to help employees financially prepare for the future.

Employees aren’t enrolling – The number one challenge plan sponsors face is simply getting participants to enroll in a plan. Plan sponsors not only feel the need to educate employees about the benefits of saving, but they also carry the responsibility of getting them enrolled in the retirement plan.

Automatic-enrollment features are a great way to boost plan participation. Ascensus data shows that plans with automatic-enrollment features have an average participation rate of 78%, while plans without them see a participation rate of 69%. Simply put, automatic-enrollment features get more employees into the plan, especially workers who are hesitant or weary of the enrollment process.

Furthermore, when employers help employees start saving with automatic features, employees often stay the course and continue saving in the plan. According to Ascensus data, when employers opted to automatically enroll their next new hire at a default rate of 3% to 5%, 47% of employees stayed enrolled in the plan at that savings rate.

Individuals aren’t always increasing their savings rates – Increasing a participant’s savings rate on an annual basis vastly improves the likelihood of a successful retirement. Automatic escalation is a useful tools to combat the inertia that most participants experience. More and more, plan sponsors engage in discussions with participants about a plan’s benefits and encourage them to increase their savings rates in order to help participants take better control of their financial lives. Combining automatic escalation with automatic enrollment is an amazingly powerful approach to boosting employees’ savings. Plans with combined automatic-enrollment and automatic-increase features have an average participation rate of 80%, according to Ascensus data.                                

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