Even if all of your employees are enrolled in your retirement plan, chances are most of them aren’t on pace to retire on schedule.
Here are three reasons why workers aren’t adequately prepared for retirement – and what you can do.
1. Setting deferral rates too low. Financial professionals recommend that individuals set aside a minimum of 10% of their take-home for retirement planning.
However, employers that offer auto enrollment normally set the default rate at around 3%. That means employees who don’t enroll at a the default rate (even with auto-escalation) won’t come anywhere close to saving enough by the time retirement rolls around.
So employers should look into increase the default rate by a few percentage points.
2. Failing to follow-up. Many firms simply present the info about their 401(k) plan at enrollment time – and that’s it. But these employers are missing out on a great opportunity to get employees to sock away more money.
Example: A large Fortune 500 company analyzed its financial education program and found that employees who received five or more education sessions contributed an average of 11% to its 401(k) plan.
3. Ignoring the real problem. If staffers aren’t managing personal finances effectively, they’ll never set enough money aside for retirement. That’s why personal finance education is catching among firms.
According to research by Financial Finesse, financial wellness programs combined with retirement education yield two to three times higher deferral rates than retirement education alone.
