Data and Research April 20, 2021

Retirement Readiness Remains Top of Mind for Plan Sponsors

Employers are focusing on ways they can improve outcomes for their participants, including by offering guaranteed lifetime income solutions and helping workers create a retirement income plan.

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More than a year into the COVID-19 pandemic, retirement plan sponsors remain committed to improving their workers’ retirement readiness, according to the latest Principal Retirement Security Survey. More than 75% of employers say they are providing the education and resources needed to help their workers prepare for retirement—yet half are concerned that their workers may not be adequately prepared.

Among workers, nearly half say they are either very confident or somewhat confident they will have enough money saved to live comfortably through retirement.

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“The latest findings showcase employers’ continued dedication to supporting their employees’ retirement readiness, as well as their overall financial wellness,” says Sri Reddy, senior vice president of retirement and income solutions at Principal Financial. “This is all while managing the challenges of running their businesses during a global pandemic and a market environment they remain cautious about.”

The survey found that the majority of employers have remained committed to providing benefits and financial resources throughout the pandemic to help employees manage savings and income in retirement. The effects of COVID-19 are top of mind for employers, with many reporting concerns about its long-term financial repercussions.

Fifty-three percent of employers are cautious about the economic outlook for the next year, whereas in July of last year, only 40% of employers had this concern. Employers are also concerned about how their employees will fare in retirement and whether their businesses will be able to attract and retain talented workers.

As to why they continue to offer retirement plans even in the face of COVID-19 challenges, 74% of plan sponsors say it is to encourage employees to save for retirement, 70% say it is to help provide financial security for their workers in retirement, 60% say it is to retain current employees and another 60% say it is to help employees have enough income in retirement to live on.

In addition, half of employers are concerned that their employees don’t have a plan about how best to manage their money in retirement. Only 16% of employers think most of their workers are saving adequately for retirement.

That appears to be a founded concern, as nearly 40% of workers are worried about outliving their retirement savings, and 49% of workers say they either don’t understand retirement income strategies or haven’t decided on an approach.

Seventy percent of workers say they would be interested in a guaranteed lifetime income offering in their investment menu. Nearly 60% of employers say they are interested in offering retirement income options to their participants, and 40% want to actively encourage their participants to select retirement income solutions.

Currently, more than 35% are encouraging as many plan participants as possible to invest at least part of their portfolio in retirement income options.

“Effective employee engagement can help workers prepare for retirement,” Reddy continues. “In addition to financial wellness education, we actively encourage the adoption of auto-features, including plan re-enrollment as well as retirement income solutions. Connecting workers with the right resources and plan features can help them recognize their options and feel more secure about their path forward.”

Employers say they can boost their workers’ retirement readiness by helping them:

  • Get a handle on the health care costs they are likely to face in retirement (nearly 70%);
  • Create a retirement income plan (nearly 70%);
  • Develop a sound strategy to manage multiple retirement accounts (65%);
  • Determine if they will have enough guaranteed income in retirement from such sources as Social Security and annuities (57%);
  • Feel encouraged to save more (37%); and
  • Join the plan as soon as they are eligible (31%).
Ask the Experts April 20, 2021

Sponsor Offers a 403(b), 401(k) and 457(b): Can an Employee Contribute to All Three?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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“I just started working in the benefits department of a large private health care system (not governmental or church-related). The system sponsors a 403(b), 401(k) and a 457(b) plan, and I’ve been informed that I can participate in all three plans! Is that correct?”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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As hard as it may be to believe, if you are a select management or highly compensated employee, this may indeed be possible!

By law, 457(b)s sponsored by private tax-exempts, such as your health care system, are only available for select management or highly compensated employees. If you are in such a classification of employees listed as eligible to contribute to that plan in the 457(b) plan document, then you may indeed contribute to that plan.

As for the employer-sponsored 403(b) and 401(k) plans, all employees generally have the right to voluntarily contribute to the 403(b) plan, though the plan has the right to exclude certain limited groups of employees such as those who are allowed to contribute to the 401(k) plan. Thus, you should check the plan language to confirm your eligibility. Similarly, you should check the language of the 401(k) plan to see if you are eligible as well, as the 401(k) plan has more latitude to exclude employees from participation.

Keep in mind that, even if it turns out that you may contribute to all three plans, the 401(k) and 403(b) plans have a single combined 402(g) elective deferral limit, so that maximum you may contribute to both of those plans combined is $19,500 (indexed) in 2021, and $26,000 if you are age 50 or older as of 12/31/21. However, the 457(b) plan has a separate $19,500 limit, so you can defer $19,500 ($26,000 if age 50 or older) into any combination of the 403(b) and 401(k) plan, plus up to $19,500 into the 457(b) plan. Note that if you are a highly compensated employee (defined as someone who earned $130,000 or more in 2020), you may be further limited in the amount that you may defer to your 401(k) plan.

As for how much you wish to put into which plan, you should check the plan features to assist you in making this decision. For example, one of the plans might offer an employer matching contribution to you, so you would want to contribute at least the minimum amount to that plan necessary to receive the maximum match.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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