Government employees are facing retirement savings challenges, but engaged participants are finding better results.
Citing the pandemic and economic uncertainty, a new study from Empower found that saving for retirement is a top financial priority for 2022 for state and local government workers.
Analyzing the savings behavior of 1.55 million active state and local defined contribution (DC) participants, the government employees steadily increased retirement savings during the pandemic compared to two years ago. The group is saving an average of 6.4% of their salary in their workplace retirement plan, up from 5.9% in 2020.
However, female government participants are saving 15% less than men (6.0% vs. 6.9%). The difference in gender saving rates is narrower in the corporate DC market (8% vs. 8.5%) and women outpace men’s saving rates at income levels greater than $60,000 in for profit plans.
The gender gap was further examined among all workers in a recent TIAA survey that found that only about a third of women (31%) are saving for retirement, compared to 44% of men. Additionally, the average account balances for females are also 70% of male government participants.
Engagement continues to produce results for participants who are saving at almost twice the rate of unengaged participants (8.2% vs. 4.2%). Engaged government workers were found to have savings rates 90% higher than unengaged participants. As participants age, the average saving rates increased especially after age 50, but were significantly more pronounced for engaged participants. Empower points to several factors that can trigger this increase, including the proximity to retirement, eligibility for catch-up contributions or an increase in disposable income due to the life stage.
Although 40% of government participants utilize a Target Date Fund (TDF), the usage levels steadily declined across generations. Overall, one in six government participants utilize managed accounts. Compared to TDF users, participants with managed accounts have both higher savings (6.4% vs. 5.1%) and engagement rates (60% vs. 42%).
“Even with competing priorities, government employees have steadily increased their savings during the pandemic. They have ranked saving for retirement as a top priority, and we are seeing that engaged participants are saving significantly more than unengaged participants,” said Claudia Step, Empower’s Senior Vice President and Chief Customer Experience Officer.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
