Aligning Retirement Benefits and Employees’ Needs

You offer a retirement plan, but participation is not what you had expected. 

Why? What’s not to love? After all, retirement plans offer benefits to employees—and employers. They give employees a way to save for their future and build long-term financial security; for employers, a retirement plan can help attract and retain employees. 

Betterment at Work in its most recent Retirement Readiness report shows that the reach of retirement plans is growing—59% of employees in 2023 had access to a 401(k) or other retirement plan, while 52% had access just a year before. 

That’s good news, but there is more work to do. That necessity stems in part from the fact that simply offering a plan may not be enough. And one explanation for that is that the benefits an employer offers may not match its employees’ needs as closely as they could. 

SoFi at Work in its report “The Future of Workplace Financial Well-Being: 2024 Employer & Employee Perspectives” says that employees trust their employers to provide “resources, advice and programs that work.” Nonetheless, they say, there is a “clear disconnect” about what employees need and what employers provide; further, they say that there is a “communication breakdown.” And that means that employees don’t know enough about what their employer is offering. 

Employee Concerns

A disconnect between the plan an employer offers and what employees need and want can result from an employer failing to recognize the concerns that may impede an employee from saving as much as they otherwise would for retirement, or perhaps even saving at all. 

Harlyn Croland, Head of Business Operations & Strategy, at Betterment at Work, says that they have found that the top five factors that are “getting in the way of retirement savings” are: 

1. the increasing costs of living
2. credit card debt
3. housing costs
4. medical bills/debt 
5. student loans

T. Rowe Price reports similar results in its “Reference Point” report about participants’ behavior and attitudes concerning retirement plans in 2023. They found that the top five barriers to saving that participants reported were: 

1. mortgage debt
2. credit card debt 
3. car loans
4. inapplicability 
5. student loans 

SoFi at Work says that 45% of the employees it studied feel stress about having insufficient retirement savings. 

SoFi at Work provides an illustration of the disconnect between employees’ interest in particular benefits and the percentage of employers offering it.

 

Recognizing the sources of financial stress employees face can serve an employer in good stead and help it to better meet employees’ needs, Croland suggests. “By supporting employees to tackle these competing responsibilities, employers will empower them to start prioritizing retirement savings,” he says. 

Costly for Employers

Such a misalignment can be costly for an employee due to foregone revenue for the retirement years, but Croland points out that it can be costly for an employer as well. 

SoFi at Work reports that 55% of human resources professionals recognize that financial stress affects employees’ mental health, and 40% say it affects employees’ productivity and ability to focus. Employees themselves recognize that, too—their study shows that 25% of employees report that financial stress makes them less productive and confident at work. 

Not only that, Croland notes, the disconnect could even result in the more dire consequence of losing employees. “Our survey found that 60% of employees would be enticed to leave their job by an employer that offers better financial benefits than their current employer,” he says. 

Just Ask!

If an employer finds that participation in its plan is not what it expected, says Croland, it needs to understand what roadblocks may prevent employees from participating or contributing more to their retirement plan accounts. 

SoFi at Work argues that there is a simple solution: ask employees what they need, and listen to them. They advocate using internal surveys at least twice a year, as well as one-on-one meetings with managers, to find out more about the financial stresses employees face and are experiencing so the employer can offer benefits that better meet employees’ needs. 

Croland, too, suggests that an employer conduct its own internal research “to better understand the financial headwinds and tailor a benefits package that reflects the priorities of their employees.” 

Why This Matters

Of course, an employer does not want to waste time and resources providing benefits that may not be utilized—there needs to be a return on that investment. But there is more to it than that—the effort to better align benefits and employee needs is part of a bigger picture. 

Savings Rates. “Savings rates are at the lowest levels in years, and people are ignoring the new risks that require us to save more, not less. We have what I call the Great Conflux coming: alarming levels of debt that will lead to a debt crisis, human longevity that requires us to save more, and an aging population that will be in need of more support. These new levels of risks, when combined, require us all to be more aware and diligent,” warns Paul Daneshrad, Founder & CEO of the investment and real estate firm StarPoint Properties.

“We can and must be doing more,” Daneshrad continues. “Human longevity is expanding, and we are going to start living past 100, which means that in the future, people will need to start planning not for 10 years of retirement but 35+ years of retirement. Eighty percent of Americans are not financially prepared for this new paradigm, and neither is the government,” he observes, continuing, “Ninety-five percent of the country needs to start saving more.”

Harlyn Croland, Head of Business Operations & Strategy, at Betterment at Work, suggests that some employers already are doing more. “Employers and plan sponsors are increasingly aligning retirement benefits with the diverse needs of today’s workforce,” he says. “At Betterment at Work,” he continues, “we see rising interest from plan sponsors in providing personalized and flexible retirement options.”

Good for Employers, Too. Putting in place benefits that will help employees save also is good for employers, Croland argues. “Investing in the retirement readiness of their employees can create a win-win situation for employers,” he says, adding that “Offering competitive retirement benefits can enhance the attractiveness of an employer's total compensation package, helping to attract top talent and retain valuable employees.” 

“In a competitive labor market, comprehensive retirement benefits can serve as a differentiator for employers seeking to stand out and appeal to prospective employees,” Croland continues. 

Further, he says, 

“Providing retirement plans demonstrates that employers care about their employees' long-term financial well-being. When employees perceive that their employer is invested in their long-term success and cares about their financial security, it can contribute to a more positive and supportive workplace culture.”

Research by SoFi at Work also shows that building employees’ financial well-being is not only good for employees, but also can benefit an employer. They found that the ability to focus and be productive at work were each 10 percentage points stronger when an employer offers benefits that improve their financial well-being. 

The Ultimate Goal

In the end, better grasping employees’ needs will help achieve the ultimate purpose of a retirement plan, Croland suggests. “By providing employees with retirement plans that best suit their needs, employers are empowering them to take ownership of their financial futures,” he says.