Employers working to improve the extent to which their retirement plans help employees may have difficulty differentiating between measures that improve participation and measures that help participants successfully save enough for retirement.
Plan popularity and success are two different things, although encouraging participation and appropriate deferral rates is important to achieve success. Experts say that retirement plan success, measured by participant outcomes, is a more challenging goal to achieve, according to Plan Sponsor. Once workers are convinced to participate, they must also be encouraged to save sufficient income and manage it wisely in retirement.
Employees are often unprepared to manage their assets once they retire. This puts them at risk of using up their savings too quickly, leaving them with nothing. Since the risk of that happening increases the longer retirement goes on, it may be too late for them to get work or find another source of income when it becomes necessary. To help with this, educational efforts may be the key.
Just as automatic enrollment tends to yield better results in terms of plan participation, auto-escalation usually results in more employees saving amounts appropriate for retirement, the news source notes. People are less likely to opt out of beneficial plan features like that, given the choice, than they are to choose them of their own accord if they are not automatic. Using features like these to encourage participation and deferral rates can free up educational resources, so they can be allocated toward teaching participants how to manage their finances in retirement.
Timing and length of participation a major factor
While there is a difference between participating in a retirement plan and successfully preparing to leave the workforce, it is also true that long-term efforts are more likely to pay off. Employees who begin saving at a young age have more time for their investments to accumulate, and can take fewer risks as a result. Research suggests that they can sometimes experience better results from their retirement planning even if their contribution levels are significantly lower than someone who starts planning later.
In that sense, employee benefit participation is often the most important step. Once people are involved in the plan, it may be easier to teach them how to manage their financial assets and convince them to raise their contributions to a wiser level. Many current retirees say they regret not saving more when they were younger, something young adult workers should keep in mind as they consider whether to spend or save.
