Help for Employees Falling Behind on Retirement Savings

In 2018, 19% of Ascensus plan participants who used its online Retirement Outlook Tool found that they were on track for a successful retirement. In fact, across all generations, the outlook is rather grim, but it is especially challenging for those younger than 25. Of all savers who were “on track” to meet their goals, only 3% of those younger than 25 fell into this group.

Only 21% of  “on track” savers were between the ages of 25 and 24, 20% were between 25 and 44, 24% between 45 and 54, and 26% between 54 and 65.

As to what plan sponsors can do to rectify this dismal situation, Rick Irace, chief operating officer for Ascensus’ retirement division, says, “to start, plan sponsors should focus on educating employees on the fundamentals of their plan” the benefits of enrollment, including matching contributions if they’re offered. For younger generations of employees, many plan sponsors and financial advisers also find it useful to highlight why it makes sense to start saving now, even if it’s at a very modest rate. Many plan providers, including Ascensus, provide educational tools and calculators that illustrate to these younger employees the clear advantages of putting time on their side.”

Irace says digital tools can also be helpful, such as a mobile enrollment app. He adds that after first-time users of Ascensus’ Retirement Outlook Tool used it, they increased their savings to 8% within three weeks. So, helping people assess where they stand and how their current savings is projected to turn into retirement income can help, Irace says.

Even something as simple as logging into their 401(k) account can prompt a participant to improve their outlook, he says. “A saver who logged into our participant website at least once in 2019 shows an average 401(k) account balance 25% higher than a saver who has not logged in since 2018, 46% higher than one who has not logged on since 2017, and 67% higher than one who has not logged on since 2017.”

Richard Rausser, senior vice president at Pentegra says plan sponsors should automatically enroll and automatically increase deferrals for participants in the plan. Rather than starting at a 3% deferral rate, Pentegra recommends 6% and has found that a mere 5% to 7% of participants opt out at this rate. “Starting at 3% is selling employees short,” he says.