Public Sector Workers Value Saving for Retirement, but Struggle With Debt

While public sector workers generally report doing well financially, many feel stressed about inflation and student loan debt, according to a recent survey conducted by Corebridge Financial. 

As a result, saving for retirement and contributing to their 403(b) plans—or 457 plans—may come as a struggle to public sector workers currently dealing with increased financial stress, says Terri Fiedler, president of retirement services at Corebridge. 

In addition to those defined contribution plans, approximately 60% of those surveyed also had a defined benefit plan available to them through their employer, according to Corebridge.  

“It’s possible folks [that] were contributing to their workplace 403(b) plan [are] now hesitant because they may be paying off student loans that they thought they weren’t going to have to pay off,” Fiedler says. 

However, Corebridge’s survey of 1,103 public sector workers, conducted in November 2023, found that saving for retirement was their top financial goal. Building an emergency fund and paying off student loan debt were also among these employees’ top financial priorities.  

When asked if having the ability to withdraw, penalty-free, up to $1,000 a year from their retirement plan to pay for emergencies would encourage them to save more in their retirement plan, 23% of workers said they would definitely increase their retirement plan contributions or begin contributing if they have not yet begun. Another 20% said they would “very likely” save more for retirement if they had this ability. 

One of the optional emergency savings provisions from the SECURE 2.0 Act of 2022 that went into effect this year would allow employers to provide this exact benefit, and JoAnne Moore, vice president of thought leadership at Corebridge, suggests that the positive response to this option demonstrates it would be a favorable benefit if offered to 403(b) participants. 

Value of Using a Financial Adviser 

Corebridge also found that public sector workers are relatively split on whether they are on track to save enough money to achieve the retirement they envision, with nearly one-quarter saying they are “not sure.” 

Fiedler emphasizes the importance of having access to a financial professional who can help these workers with their retirement planning. According to the survey, 77% of public sector workers said they do not work with a financial professional. A majority of those who do not work with a financial professional said they would feel more confident about retirement if they worked with one, and 78% of workers who do work with a professional said they feel more confident about retirement because they work with one.  

“I think that’s there’s going to be a blurring over time between physical wellness and financial wellness,” Fiedler says. “If you think about them in terms of circles, there’s your physical health, then there’s your wealth [or] financial wellness, and in the middle of that is your emotional health. If you’re physically not well, if you’re financially not well, it impacts that overlapping, concentric circle, and it impacts your emotional health.” 

Fiedler says financial professionals are helping people with issues beyond just traditional financial planning, such as educating them on assisted living options and what Medicare plan to choose.  

Retirement Income in 403(b) Plans 

When it comes to decumulation strategies for public sector workers, most of those surveyed said they are expecting to fund their retirement using funds from their retirement savings plans (IRAs or 401(k), 403(b) or 457) or from Social Security. Only 9% said they plan to fund their retirement using an annuity. 

With in-plan retirement income options, Fiedler says there is even less movement in the 403(b) space than the 401(k) space when it comes to actual implementation.  

“I don’t think adoption will happen at a great rate of speed,” Fiedler says. “We have to keep in mind, too, that even if the plan sponsor offers in-plan [retirement] income, each participant still has to adopt it [because] it’s not automatic.” 

Moore adds that the survey showed there is an expressed interest in having retirement income-type products or annuities in-plan. When asked if in-plan retirement income was offered as an option, one in four said they would very likely choose that solution, and another half of respondents said they would be “somewhat likely” to choose it. Moore agrees with Fiedler that there is interest in these options, but uptake will be slow.  

Participation, Contribution Rates Up 

Corebridge’s research also found that more than one-third of public sector workers increased contributions to their defined contribution plans in the last year. In addition, 47% said they would most likely increase the amount they contribute when their salary increases, and 14% said they would once they have paid down other debt. 

A recent survey conducted by the Plan Sponsor Council of America found that participation rates in 403(b) plans hit an all-time high in 2022 and that the average account balance for active and inactive plan participants was $90,511. 

“It goes back to education and getting employees to consider increasing their contributions, because I think we all have a role in helping employees take action to achieve their financial goals,” Fiedler says.