Not surprising, but refreshing to see it reinforced—employers play a critical role in motivating their employees to begin saving for retirement.
Cerulli Associates finds that an employer’s matching contribution is the most influential factor motivating participants to begin saving for retirement.
Two-thirds of 401(k) participants indicate they would be very likely to increase contributions if their employer increased the matching formula (e.g., matches up to 5% instead of up to 3%).
At the same time, only one-third would be very likely to increase their contributions if they received a personalized statement with financial projections showing inadequate retirement savings.
Additionally, participants most frequently indicate they began saving for retirement because their employer offered a matching contribution (46%), they could afford to start saving for retirement (44%), or they were automatically enrolled in their employer’s retirement savings plan (29%).
Besides employer contributions and auto-enrollment features, participants can benefit from tailored retirement planning advice and holistic financial wellness programs.
“Plan sponsors may encourage greater participation through targeted communications,” Anastasia Krymkowski, associate director at Cerulli, said in a statement. “For instance, employers might encourage an employee contributing just 2% to maximize the employer match and illustrate the impact of that additional contribution over time.”
Although educational materials and targeted communications serve as a good starting point, the research suggests that plan-related guidance is no substitute for personalized advice.
One-on-one advice
When planning for retirement, other than valuing their own research, participants are most likely (40%) to view one-on-one sessions with a professional advisor as “very helpful” while videos, articles, and employer communications are typically only seen as “somewhat helpful.”
Moreover, it’s important for these conversations to frame retirement savings in the context of a participant’s broader financial picture.
“Helping employees work through their current financial obligations, such as paying off student loans or establishing emergency savings, could help put them in a better position, financially and emotionally, to save for retirement,” Krymkowski added.
For late-career employees, there is also a pressing question of how to generate income during retirement. Older participants are much more likely to contribute 15% or more of their paycheck, perhaps recognizing the risk of falling short of their savings goals. However, plan sponsors can take steps to encourage employees of all ages.
“Employers—through contribution matching, auto-enrollment features, and participant education—play a key role influencing participants to save for retirement. This hands-on approach can help employees meet their current financial obligations while saving for the future,” Krymkowski concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
