Data and Research February 24, 2016

Stretching the Match a Motivation to Save More

Research finds many retirement plan participants use the match as a guide for how much to save in their plans.
Reported by

The company match can act as a powerful incentive that drives employee behavior, says Michael Ericson, an analyst with LIMRA Secure Retirement Institute.

A study released by LIMRA shows workers in private sector and nonprofits alike will save only enough in their defined contribution (DC) plans to receive the full company match.

Get more!  Sign up for PLANSPONSOR newsletters.

Nearly half of American workers believe they are not saving enough for retirement, and four in 10 working households have less than $25,000 saved for retirement, LIMRA says. Using a stretch match strategy— which would require an employee to save a higher percentage to attain the full company match—can be a way for plan sponsors to increase plan participants’ savings behavior.  

Fewer than half of workers surveyed (four in 10, in both private sector and nonprofit industries) consider themselves “savers.” Of those with access to a DC plan, 20% are not making any contributions at all to the plan. Those in the private sector who are not contributing are more likely to say they cannot afford to defer any salary or to have competing savings priorities, compared with nonprofit employees (67% vs 53%).

Institute researchers found more than one-third of Millennial workers in both the nonprofit and private sectors are saving 10% or more (34% and 35% respectively). Only 27% of Boomers and 28% of Gen X not-for-profit workers are saving at that rate. In the private sector, Boomers and Gen X workers save a bit more than their Millennial counterparts: 36% of Boomers and 35% of Gen X workers are saving 10% or more in their retirement plans.

Even with robust saving habits, pre-retirees surveyed have no plan on how they will withdraw the assets from their DC plans once they retire. Just one-third have calculated their savings and expenses in retirement. The study found nearly half of pre-retirees said they plan to withdraw 9% or more of their assets each year in retirement. Most financial experts recommend drawing no more than 4% a year and in low-interest rate environments, maybe less.

“With longevity at an all-time high, retirement can last more than three decades,” says Ericson. “Understanding how to safely draw down savings becomes critically important for retirees. Not-for-profit workers are more likely to have a pension income along with their DC plan, but most for-profit workers will not have one.”

Ericson says professional advice can be helpful to both types of workers. The key is to understand the unique challenges and obstacles each group is facing.

Benefits February 24, 2016

Private Health Care Exchanges Meet Employers' Goals

There has been an uptick in the use of private exchanges among mid-sized employers.
Reported by

“Fidelity’s recent launch of a private health care exchange validates the usefulness of private exchanges in the small and mid-sized employer market,” says Ashok Subramanian, CEO and co-founder of Liazon, a Willis Towers Watson company, and operator of the Bright Choices Exchange.

Subramanian tells PLANSPONSOR that 80% of Liazon’s clients have less than 1,000 employees, putting them squarely in the small and mid-sized employer camp. Liazon provides software, administrative support, call center and back office support, as well as products and programs through its Bright Choices Exchange as well as other white-label exchanges nationwide. Using Liazon, brokers, consultants or employers can adopt a private exchange in a turnkey approach.

Get more!  Sign up for PLANSPONSOR newsletters.

According to Subramanian, the decision to adopt a private exchange for health benefits offerings always starts with the objective of the employer. Most employers are looking for greater cost predictability, to enable employees to have a personalized approach to employee benefits, and to simplify or outsource key functions in a highly regulated environment, he says.

Private exchanges allow employers to adopt a defined contribution (DC) approach to paying for health care, helping to manage costs. They also give employees choices in plans instead of what the C-suite or HR may have chosen, and administration is simplified, he adds.

NEXT: Why such growth in the mid-market

While there are a number of larger employers using private exchanges, the biggest growth in the market has been in the less than 10,000 employee space, Subramanian says. The reason for this goes back to the three goals. “Those in in the small to mid-market have bigger cost problems and fewer tools to address them,” he notes. “It is also harder to offer more choice with a smaller company and benefits team; large employers have more staff to do administration in house. So, private exchanges naturally align with greater pain points for the small and mid-market.”

For many employers, the reason for adopting a private health care exchange was to try to avoid the excise tax on high-cost health plans (Cadillac tax) now set to go into effect in 2020. Subramanian says this is still a viable approach if employers are able to steer employees to select low-cost plans.

However, he notes that with the delay of the Cadillac tax effective date from 2018 to 2020, employers are now considering the possibility that it will go away altogether and focusing less on it than they were before. “They are now in a wait-and-see mode,” Subramanian says.

Finally, he says Liazon thinks the benefits industry will increasingly see more of a convergence between health care and retirement, and he revealed that Liazon has started a pilot program where employees can take some of the dollars allocated for health care and put them into retirement savings.

«