Retirement is a milestone for employees that requires careful planning. Unfortunately, many employees have fallen behind in their retirement savings goals, leading to feelings of insecurity about retirement and an increase in stress and anxiety impacting their engagement, morale and productivity.

Even more unfortunate, many employees mistakenly believe that they are enrolled in and contributing to their workplace retirement plan when in fact they are not. According to Principal’s Retirement Security Survey, 59% of employees who are not contributing to their 401(k) or other workplace plan believe they are. Another 77% think they began saving automatically just by becoming eligible to contribute. Employers have a role in correcting mistaken beliefs and increasing retirement plan participation for eligible employees.

Improving retirement preparedness contributes to the overall well-being of the workforce. Employers can help participants save more by utilizing plan design strategies (automatic features, matching retirement plan contributions, offering educational benefits), providing targeted communication and increasing education on saving for retirement.

Implement Automatic Features

Retirement planning can be stressful for employees, who can be overwhelmed by the number of investment choices in an employer’s 401(k) plan and unsure how much to invest or what funds to choose. Principal’s Retirement Security Survey found:

• Sixty-two percent of employees said they would continue to save in their employer-sponsored retirement plan if they were automatically enrolled by their employer.
• Plans using automatic enrollment are more than twice as likely to achieve 90% participation versus plans that do not automatically enroll participants.
• Ten percent of workers opt out of retirement plans when automatically enrolled by employers upon being hired.
• When asked how much they would need to save to maintain their standard of living, 34% of employees said they had not thought about it.

Several automatic plan design features can be utilized to help employees:

• Autoenrollment. Automatically enroll employees in workplace retirement plans by default upon hiring, while also providing employees with a chance to opt-out.
• Target date funds. Place employees in target date funds, which offer a diversified mix of investments that automatically adjust over time based on the employees’ targeted retirement dates. The funds are managed by experts for employees who may not feel they have the time or expertise to actively manage their own accounts.
• Autoescalation. Employee contributions can automatically be increased every year. Employers choose an employee contribution rate percentage to start employees at, often 3%. Then, 1% is added to the pre-set contribution rate annually, often up to a limit of 10-15%. This helps employees save more as their salaries increase.

Beginning in 2025, SECURE 2.0 Act of 2022 (SECURE 2.0) Section 101 will require new plans established after December 29, 2022, to automatically enroll new employees in a 401(k) or a 403(b) plan unless the employee opts out. While SECURE 2.0 does not require auto enrollment in plans established prior to December 29, 2022, employers can consider targeting communications to current employees who are not enrolled in the plan. More on communication strategies below.

Match Retirement Plan Contributions

Matching retirement plan contributions benefits both employees and employers. Plans must make sure employees are aware of the amount the employer will match and how it works. Employees are not as likely to want to miss out on “free” money. When employers offer a match, there may be certain tax benefits available to them in addition to improving employee satisfaction and retention rates.

Offer Educational Benefits

Educational debt is a barrier to retirement savings for many employees. Employers can provide up to $5,250 a year in tax-free educational assistance, under Internal Revenue Code Section 127, to employees who are still in school. Employers can also take advantage of the student loan matching provisions of SECURE 2.0, by contributing to an employee’s retirement savings to match their qualified student loan payment.

Use Targeted Communications

In addition to automatic enrollment, Principal’s survey found a significant increase in savings and participant engagement due to the use of regular communication. Principal tested their participant communications and found a 17% increase in click-through rates when a participant’s first name was added to the subject line of the email.

Targeted communications are more helpful than general messages, as employees may ignore guidance when they receive too many messages. For example, when Microsoft sent targeted mailings to employees who were not enrolled in its 401(k) plan, the result was a 90% plan participation rate.

When providing targeted communications, employers should consider:

• Sending messages to employees who are not currently participating in the retirement plan, who are not saving at a recommended percentage of their salary, who are saving below allowable limits or who are eligible for catch-up contributions
• Communicating regularly regarding retirement benefits and savings options to help employees reach their goals
• Making sure communications are positive
• Using different formats to reach employees who may have different learning styles (e.g., email or text messages, videos, in-person meetings, podcasts)
• Sending personalized reminder messages to employees, notifying them if they are enrolled and the amount of their contribution.

Provide Education

Employers can provide financial education benefits to help employees save for retirement. Topics to cover include:

• Budgeting and debt management basics
• Setting up emergency savings accounts
• Retirement savings and investment choices
• Social Security and Medicare
• Catch-up contributions.

Employer tips for providing education:

• Reach everyone. Provide education to employees at all levels of the workplace and at all career stages, not just those nearing retirement.
• Simplify 401(k) information. Because retirement plans can be confusing, employers should make information as easy to understand as possible. Consider using videos, FAQs and other methods of communication to share retirement plan news.
• Use graphics. Using charts and infographics to show employees how retirement savings can grow over time may motivate them to start or increase savings. Personalized education addressing each employee’s needs and situation may be most beneficial, as this allows employees to see how savings applies to them.
• Utilize technology. Make employees aware of websites, apps and other resources to encourage them to make informed decisions about their finances.

For additional information on retirement security, see the International Foundation’s Financial Education/Retirement Security Toolkit.

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.