Plan Sponsors

Engaging employees to enroll, increase, and rebalance


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Most of plan sponsors' efforts to engage employees come down to compelling them to take three critical steps: Enroll in the plan, increase their contribution rates, and rebalance their investments to ensure that they have the right mix based on their goals and time horizon. However, a recent TIAA survey1 found there are still significant populations of employees who are not taking these steps in a timely fashion — or at all. Unless they are saving 10% to 15% of their salaries each year, including employer contributions, employees are not likely to be on track to replace the recommended 70% to 90% of their income in retirement.

Plan sponsors can help contribute to employees' financial well-being by engaging with them continuously throughout their careers, including during critical moments such as during benefits enrollment season and after salary increases.

Many employees are not actively engaged

Employee engagement is an ongoing process to get employees to take an active role in their retirement planning. Although auto-enrollment and auto-escalation options offer great benefit to overcoming employee inertia around retirement planning, they are not universal. In fact, less than half (44%) of Americans contributing to a retirement plan were automatically enrolled in their plans, including the same percentage of employees in higher education.  More important, auto services are not a substitute for actively engaging employees in their financial well-being.

Employees who are not engaged may delay the steps that can contribute to their retirement readiness. More than one-third (37%) of employees who were not automatically enrolled in their plan waited six months or longer to enroll — reducing their savings horizon and growth potential.

A similar percentage of workers (36%) have never increased the percentage of their salary that they're saving for retirement (see Exhibit 1). This is of particular concern in plans that have dollar rather than percentage contribution formulas. As salaries rise and contributions remain unchanged, contribution rates — on a percentage basis — decline.  With this approach, many employees will not be able to reach or sustain the 10% to 15% recommended contribution rate needed to achieve a comfortable and secure retirement.

Exhibit 1

Also of concern are the one-quarter of respondents that have never made changes to how their money is invested and the nearly 3 in 10 respondents that have not made changes to how their money is invested in over a year.  These employees could find themselves with inappropriate asset allocations based on their life stage, risk tolerance and lifetime income goals.

Knowing your employees

To effectively engage all your employees, you need to understand who they are, how to reach them, and what they need to know to take action. Examining the retirement behavior of different demographic groups can help you understand your employees' needs.

Different demographic segments may have shared traits or behaviors that can help you to identify where employees need the most help. These insights can help to identify those employees who would benefit the most from targeted messaging around increasing contributions, or seeking advice sessions with specific fund recommendations to rebalance their accounts.

For example, 57% of respondents did not increase their contributions after their last raise. Of these, 25% said they did not increase because they already contribute the maximum — but men (33%) are almost twice as likely as women (17%) to contribute the maximum allowed. Knowing this can help you determine whom to target with catch-up contribution messages.

Survey results also show that Millennials are significantly more likely to have changed how their money is invested in the past year (59%) than those 35 years or older (42%). As a result, you may want to reiterate the importance of rebalancing with workers 35 years or older while working with Millennials to ensure that the choices they are making are the right ones for their life stage.

Finally, one-third (34%) of workers aged 55 and older say they have never made a change to the way their money is invested. These workers are fast approaching retirement and may need guidance around transitioning their savings to income. You can make this transition easier by helping them understand how much income they will need in retirement and by offering products that can guarantee them a lifetime of income.

With this knowledge and a well-thought-out communications program, you can craft and deliver relevant messages to help employees overcome retirement planning obstacles.

Getting the message across

Communications should focus on encouraging employees to take three actions: enroll in the plan, increase contributions every year, and check asset allocations every year to rebalance if necessary. (You can find an article here to share with your employees on the importance of these steps.) Communications programs will benefit from the “4 Cs”:

Find the resources you need

It may seem that a great deal of effort and expertise are needed to develop an effective employee engagement strategy. Your plan provider and advisor can work with you to develop an employee engagement strategy that is customized for your plan and will help your employees take the crucial steps to support their financial well-being.