Even with 88% of employees participating in their employers’ 401(k) plans, they are overall still underprepared for retirement, with only 19% of employees surveyed on track to reach their retirement goals, according to Financial Finesse’s Retirement Preparedness Study.

Cynthia Meyer, resident financial planner and co-author of the research report, based in Gladstone, New Jersey, says she and her colleagues were surprised the needle hasn’t moved too much on retirement preparedness. “We have seen [retirement plan] participation rise, especially with younger people, but still, 81% are not confident,” she tells PLANSPONSOR. “It shows that more than just plan participation is needed.”

Financial Finesse believes employees who do not feel prepared for retirement fall into three categories: Those who are completely unprepared and overwhelmed and don’t know if they are saving enough to retire comfortably (61%); those who have run a retirement projection and know they are not saving enough to retire comfortably (19%); and those who are financially on track to retire but are not comfortable with economic and market uncertainties (19%).

The study also found:

• African Americans and Latinos were less likely to report being on track for retirement than Asians and Caucasians;
• Employees that make less than $60,000 a year are half as likely to report being on track to retire comfortably as those that make more than $100,000 a year;
• Only 17% of women, compared to 24% of men, are confident they are on track to achieve their income-replacement goals; and
• Twenty-eight percent of Millennials do not have a handle on cash flow, and less than half (47%) have an emergency fund, which may be contributing to lower plan participation, more retirement plan loans and hardships, and more cash-outs when they leave a job.

Financial Finesse has developed a six-step retirement-preparedness model retirement plan sponsors can use to help employees be prepared for retirement.

Prompt employees to run an annual retirement projection. Meyer says most plan sponsors have calculators available on the retirement plan website, but the easier a plan sponsor can make this, the more likely employees are to do it. “Participants need a human reminder; plan sponsors should extend targeted communications on participants’ birthdays or retirement plan enrollment anniversary—some other time than open enrollment,” she suggests.

Set the retirement plan default deferral rate to 10% or more. “We realize this is a high number, and the likelihood of lower-income workers to opt out should be considered,” Meyer notes. “But if employers start right away at 10%, it shows participants that is the optimal rate of retirement savings. And, if plan sponsors did that for the age 35 and younger group, that group may not have the same problem in the future older participants are having now.”

Automatically enroll employees into an automatic deferral escalation feature. Meyer says if participants start at 10% and move up to 15%, it should get most of them where they need to be, except maybe the late savers, staring in their 50s.

Offer benefits planning annually. “If benefits planning is offered the whole year through a financial wellness program or during open enrollment, it helps people demystify their choices and choose those benefits that are best for their families,” Meyer says. She notes that benefits other than the retirement plan can help employees with long-term finances, and employees should be told how health savings accounts (HSAs) or other benefits can help them with retirement and not just expenses now.

Use communications to target specific demographics. This will differ by company and should be based on research about what is going on with the particular company, according to Meyer. “Plan sponsors should think about how to reach demographic groups in a way that encourages them—webcasts are better for younger participants, workshops are better for older participants, and images used on communications should be relevant to different groups.”

Develop a comprehensive financial wellness program. Financial Finesse data shows that benefits education and financial wellness programs increase retirement preparedness by 77%. Financial wellness programs can help people figure out how to free up cash for retirement savings, Meyer says. “We’ve found that the more touches a participant has with financial wellness, the more likely he or she is to make incremental changes,” she notes. “Different people want to learn in different ways, so employers should use a multiple-pronged approach.”

Financial Finesse ran some numbers on Millennials to see how to prevent this generation from being in the same situation pre-retirees are now, according to Meyer. It found it an employee started saving at age 22 at a default 10% deferral, with 1% automatic deferral increase each year, it will get them to financial independence by age 55. “The more we can coach the younger generation to make this their behavior, the better off they’ll be later,” she says.

The Retirement Preparedness Research report is here.