Plan Progress Webinar: Plan Design Considerations to Boost Outcomes

Plan sponsors’ automatic features need to be coupled with education and messaging to effectively boost workers’ financial security, according to retirement industry veterans who spoke during a recent edition of the 2022 Plan Progress webinar series.

“Automatic anything, when it comes to positive financial decisions, is a win,” said Josh Jessup, general manager of human resources at Delta Air Lines, “whether that’s automatically setting a transfer into your emergency savings or automatically enrolling people into these accounts—anything that’s in someone’s best financial interest. Mak[ing] it automatic so they don’t have to think about it—or, ideally, they don’t have to do it themselves—is a big win,” he said.

Using automatic enrollment to get participants contributing to a retirement plan is the first step in a plan sponsor’s efforts to boost participant outcomes, Jessup added.

In addition, plan sponsors must be thoughtful when setting an auto-enrollment deferral floor, because many participants will never reexamine their contribution to increase it, he said.

“It is really important where you set those amounts, because there is inherently in employees’ understanding this perception that the employer must have put it there because that’s the right place for it to be,” he said. “Sometimes we can be a little too concerned—‘I don’t want it to be too high, I don’t want them not to be able to cover their bills’ or whatnot—but the message that they get is ‘Oh, auto-enrollment was only at 3%, I must only need to contribute 3%.’”

Jessup noted that Delta auto-enrolls workers at 6%, matches 6% and makes a 3% non-elective contribution. The company’s goal is to have every employee save at least 15% of their income for retirement.  

While removing the friction that may delay or derail an employee from deferring to a 401(k) is key, for plans to squeeze the most juice from auto-features that they can, the features must be accompanied by attentive messaging. 

“We have what I would call a multiprong approach to communication, engagement and education for our employees because we find no one-size-fits-all [approach] works for all of our employees,” Jessup added. “We really try to cover our bases with all of the opportunities we have to communicate to our employees and to really get out in front of them. As many electronic communication opportunities as we have, our employees still request any time they can get it to have a real-life person standing in front of them and talking to them about the great programs that we have.”

‘Listen’ While You Work

One way for employers to help employees reach the best retirement possible is by understanding what their needs are for the short term and over the long haul.  
Natalie Blain, senior innovation manager at Commonwealth, said that for plan sponsors to understand how to boost workers’ retirement outcomes, they can start by listening to their employees.

“Financial security in retirement is absolutely essential, but if you think about workers right now—with inflation, increasing prices of goods—sometimes there are short-term expenses that are more immediate, and so they need assistance right now, before they can even begin to do longer-term financial planning and build their financial security,” she said.

Blain noted that research from Commonwealth and the Defined Contribution Institutional Investment Association shows a connection between emergency savings accounts and retirement. Workers earning low and moderate incomes can more easily build financial security for retirement if their short-term challenges are mitigated.  

“Emergency savings is really a great option to help address in the moment what’s happening right now and also open up opportunity for longer-term growth,” she said.

Speaking about a case study Commonwealth conducted, workers at United Parcel Service, through the BlackRock Emergency Savings Initiative and with Voya administering the emergency savings program, have been able to save an estimated $10 million, Blain added. UPS has a large and diverse workforce of warehouse workers, office employees and drivers, which made it essential that the program was communicated through many channels and in different formats, she said.  

“People that have emergency savings are less likely to take a hardship withdrawal,” Blain said. “And we also saw that employees who increase their after-tax contributions were about twice as likely to have also increased their pre-tax contributions.”

Delta plans to help to strengthen financial security for its workers by offering access to emergency savings accounts through its 401(k) recordkeeper, Jessup adds.  

“A number of studies show that employees that have emergency savings are much less likely to tap their 401(k) or retirement savings when they have a financial need,” he said.

Human Element

Boosting outcomes requires that plan sponsors provide the tools for financial security, listen to what workers’ needs are and provide answers to participants’ questions, said Neil Stamper, corporate retirement director at Graystone Consulting, a business of Morgan Stanley.

“Most people in America spend more time planning their vacation than they do planning for their retirement,” Stamper said. “The more you can do to reduce the roadblocks, the better, and we’ve just found that having someone, even if it’s a call center, where they can have that readily accessible, can help overcome some of that.”

Particularly for the many employees who are not experts in finance, plan sponsors should complement tools with guidance. Stamper said that many recordkeepers have online financial planning and retirement tools available to participants through the plan sponsor.

“We found that this works particularly well for those that are financially minded; the problem is there’s a lot of people [who] are not financially minded,” he said. “When you have these do-it-yourself tools, participants may run into questions: ‘What inflation rate should I use? What rate-of-return assumptions are reasonable?’ That’s why it’s always helpful to have a person that they can go to, or a team of people that they can go to, for guidance.”

He also noted that while it is good for plan sponsors to measure retirement plan success by participants’ retirement income replacement ratio, accumulated savings, earnings replacement and retirement earnings, the optimal outcome should be helping participants arrive at a place where they know what to do next. 

“One of the ways that we measure this and measure a successful plan, and how to make sure people are progressing, is: Do participants have an idea of what they need to do next, what the next step is to get them to a better place?” Stamper said. “To me, that’s a win, and that looks different for everybody.”