According to findings from the recent Transamerica Retirement Readiness Summit, advisers can use several steps to help sponsors create “super saver” employees.
Define “retirement plan success” as better retirement outcomes for participants. Financial professionals can help employers assess their retirement plan based on how well it helps prepare employees for retirement. A successful retirement plan should improve an employee’s ability to retire with confidence, Transamerica says. To improve employees’ retirement readiness, the plan can cover more employees, enroll more employees into the plan, and motivate employees to save more for retirement.
Use auto features to improve savings rates. Use auto-enrollment and auto-escalation features to improve participation and savings rates. One of the easiest ways to help employees to save more for retirement is to automatically enroll them in the retirement plan, and then automatically increase contributions over time, Transamerica says. Although employees have the ability to opt out of automatic features, data indicates most employees keep the contribution increases in place.
Advisers should work with sponsors to ensure the default savings rate is adequate. If every employee is participating in the company’s retirement plan, that’s great—but if they are saving at an average rate of 3%, retirement readiness is falling short, Patricia Advaney, senior vice president and chief marketing officer for Transamerica Retirement Solutions, told PLANADVISER. “[Retirement readiness is] really a combination of things, and the more comprehensive it is [the better],” she said.
Transamerica suggests automatically enrolling employees into the retirement plan at a rate of 6% or higher, and then automatically increasing the contributions by 2% per year—rather than the traditional 1%— to a savings rate of 10% or more. “Automatic enrollment and automatic escalation are excellent features to get employees started in saving for retirement. But we can’t stop there,” Advaney said.
Helping employees become “super savers” means helping them understand the importance of being consistently engaged in their retirement savings, she added.
Advise on structuring the company’s matching contribution to drive savings rates. Advisers can help plan sponsors understand the connection between the matching contribution formula and employee savings behavior. The employer’s matching contribution is a popular incentive for employee contribution rates. Over time, an employee’s additional contributions can make a dramatic difference in assuring an employee enjoys a financially healthy retirement, Transamerica says.
Help plan sponsors optimize the number of investment choices to improve savings rates. Financial professionals can help retirement plan sponsors find the right mix of investments for the company’s employees. Too many investment choices can tend to paralyze participants, possibly causing employees to avoid participating in the plan altogether, Transamerica says. Advisers can help plan sponsors limit the number of investments to a reasonable number that will allow employees to invest wisely.
Advise on target-date solutions to help participants stay on track over the long term. As part of a plan’s investment menu, advisers should consider investments that automatically diversify holdings based on the investor’s age and/or risk tolerance. Target-date solutions will diversify the employees’ investments automatically, making it easier for participants to stay on track with their investments over time.