by Rick Unser
How many of your retirement-age employees are just hanging around so they can receive benefits and collect paychecks, simply because they can’t afford to stop working?
Dealing with an aging, financially unprepared workforce is a reality that should concern employers.
The 2011Research Institute’s Retirement Confidence Survey shows that 41% of workers age 55 or older expect to continue working after age 65, more than double from 2001.
Health care costs for employees older than 65 are more than double that of employees age 45 to 55. And workers’ compensation data show that, while the statistical rate of work-related accidents does not increase dramatically for employees over age 65, when incidents do occur they are more severe and cost more work days.
6 steps to retirement readiness
So it’s in the best interests of employers to improve the retirement outcomes for their employees by creating a culture of retirement readiness.
Here is a six-step plan that works:
1. Conduct a company retirement readiness assessment.
Find out how many employees in each age group participate in your organization’s retirement plans. If you see pockets of low participation, create campaigns that “speak” directly to them. Are some cohorts woefully unprepared for retirement? You might have time to positively affect those employees’ outcomes.
2. Evaluate your plan design.
Change anything that doesn’t encourage participation. Examples: Shorten the waiting period for a new hire to enroll. Automatically enroll employees so they have to take action to opt out of the plan.
Raise the contribution level at which you enroll employees: If you’ve been signing them up for 3% of salary, boost it to 5% or 6%. Build in regular, automatic contribution increases.
3. Communicate to change behavior.
You need to communicate differently with a 25-year-old than you do with a 62-year-old. The older worker doesn’t need to hear about the benefits of a company match. If you’re looking to change behavior—if you want employees who do not participate in your company 401(k) plan to enroll, for example—make it easier.
Call a meeting to explain how to enroll, and then let employees check a box on a card so you can enroll them. Don’t make them do it themselves later. They might never get around to it.
4. Offer retirement income solutions.
Show employees how to convert their retirement savings to retirement income. Most of the education around retirement plans revolves around saving, investing, diversification and growth of money.
Start talking about how employees can make sure their nest eggs will last throughout retirement. Example: A new offering from 401(k) providers is the in-plan retirement income solution. Participants can protect all or a portion of their account balances so they have a guaranteed income for life. Also, educate employees about annuities, the benefits of bonds and other investments that can convert to income.
5. Be strategic with company matching dollars.
Maybe your organization has always offered a 100% match on the first 2% of income that an employee contributes to the plan. That won’t result in a good outcome for the employee. How about offering to contribute a 25% match to the first 8% that the employee invests? It will cost your company the same while encouraging the employee to save more.
6. Measure constantly.
You can’t improve what you don’t measure. Designing a plan and a strategy isn’t a one-time thing. Measure your success at least annually to determine if more employees are participating in your firm’s plan and if they’re investing a greater proportion of their incomes. If not, change your strategy again.
Author: Rick Unser is vice president of Lockton Investment Advisors in Los Angeles. Contact him at (213) 689-2392.
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