At this stage in its nearly 40-year evolution, the 401k plan is no longer a nice-to-have, but rather an essential, baseline benefit. According to a recent Schwab Retirement Plan Services survey, 90 percent of American workers would think twice before accepting a job that didn’t offer one.
Many employers have also embraced automatic features—including auto-enrollment and auto-escalation—as the gold standard for their 401k plans, understanding that they do right by their employees by helping them to overcome the inertia that would keep them from taking the positive steps on their own.
If your clients aren’t there already, it’s worth encouraging them to think of auto features as another basic element of plan design.
Beyond the basics, though, there is plenty that employers and those who advise them can do to support employees as they navigate their complex financial lives. It’s important to understand that retirement is just one of a whole host of workers’ financial concerns.
Many Americans, especially when they’re just starting out, are trying to figure out how to save up for a car or their first apartment.
Retirement, especially if it’s decades away, might not even be on their radar.
Giving employees a leg up
Employers have the opportunity to help their employees feel more in control of their finances and alleviate some of the financial stress that they might otherwise bring to work with them. It’s first and foremost the right thing to do, and it can also be a competitive advantage.
That is, companies that offer their employees a helping hand—in the form of managed account services for their 401k plans, consultations with financial professionals, and/or more holistic financial wellness programs—may have an advantage in attracting and keeping strong talent.
In turn, their employees tend to be more engaged and may experience better financial outcomes.
Professional 401k advice can help participants with tasks like setting an appropriate savings rate, determining risk tolerance and selecting investments accordingly, rebalancing when needed, and creating a retirement saving strategy that considers a number of personal data points, like marital status, dependents, salary and other sources of income.
Financial wellness programs are more comprehensive in nature, and can help with financial matters including budgeting, managing debt, and creating savings plans for goals including but not limited to retirement.
Oftentimes, workers who feel as though they don’t have the resources to save for retirement while managing their present-day financial obligations come to understand that they can save for retirement gradually over the course of their career once they have help to manage their overall financial situation.
Recognizing advice as a win-win for employers and their employees
Research shows that workers want and will take advantage of such assistance.
Respondents in the aforementioned survey said they would be highly likely to use online tools to help plan for retirement (88 percent) and help from a professional to develop a financial plan (77 percent), for example.
But, again, many people struggle with inertia that keeps them from taking positive actions independently, so they need some encouragement and guidance to utilize all the resources at their disposal.
I’ve observed many successful examples of companies actively prompting and even incentivizing their workers to participate in financial wellness programs and advice sessions.
For instance, we work with a large health insurance company that contributes to its employees’ Health Savings Accounts (HSAs) when they complete a financial consultation. A well-known law firm offers extra paid time off, and several retail companies have created programs wherein employees earn points for taking these steps and can redeem them for gift cards, experiences and other perks.
Moreover, the benefits of participant engagement aren’t just point-in-time. Employees who accept professional 401k advice generally have higher savings rates and stay the course in times of market volatility. They’re also much more likely to feel confident in the investment choices they make.
When you’re guiding companies as they put together their 401k plans and broader benefits offerings, encourage them to go beyond the baseline.
As the companies I mention can attest, a bit of creativity and a dash of incentive can spur employees to take positive steps that will benefit their personal financial situations and foster more meaningful connections with their employers.
Nathan Voris is Managing Director of Business Strategy at Schwab Retirement Plan Services.
Nathan Voris is Director of Investments, Insights, and Consultant Services at Schwab Retirement Plan Services.
