Communication Strategies to Tackle Common Participant Savings Barriers

Talk to your financial advisor and question if pre-recorded, multi-language training videos can be either linked to their app or to your system. These training videos can be easily accessed with a QR code which may include, but should not be limited to:

• How to build a budget
• How to build a family trust
• How to care for a retired parent
• How to navigate Medicare
• How to afford aging in place versus assisted living
   

AND – do not forget to educate all year and not just around open enrollment!  Below are some common obstacles that plan sponsors face in helping participants save for retirement along with sample language that can be used with participants.

Student Loans
Student loan borrowers in the United States owe a collective $1.76 trillion in federal and private student loan debt and this number only continues to rise. How can you as a plan sponsor help your participants? Provide financial education on topics like creating a budget and building an emergency fund and how to pay down high-interest debt. Another opportunity is to encourage those participants to maximize retirement plan contributions before student loan payments resume or if they are close to paying their loans off, encourage them to direct those funds to their retirement plan.

• Sample Participant Language – Are you close to paying off student loans? If so, this is the time to take those funds and redirect them to your retirement account(s) – even contributing some of those funds towards retirement would put you in a much better position.

Bonuses
Bonus pay is typically taxed at 20 percent, which is significant. Check to see if your plan permits contributions from bonus pay and if so, ensure you are communicating those options to your participants. In not, you may consider adding this plan provision (in the definition of compensation) as it can reduce the tax implications for the participant.

• Sample Participant Language – Bonus pay is typically taxed at 20 percent, which is significant; however, if the employer’s plan permits contributions from bonus pay – it can reduce the tax implications for you. This is a great opportunity to make a substantial impact on your retirement account so take advantage of making these extra funds work for you.

Automatic Enrollment and Escalation

The Pension Protection Act of 2006 (PPA) created a safe harbor for plan sponsors to automatically enroll employees into 401(k) plans. With this act, plan sponsors are permitted to automatically enroll employees into the plan and require the participant to opt-out if they do not want to contribute.

As a plan sponsor, you may be wondering what the benefit of automatic enrollment and escalation is. Below are a few highlights on the benefit to the employer.

• Streamlines the enrollment and savings process.
• Puts participants on an automatic savings track. This may help retention and give those participants more security in their financial future.
• Increases plan participation across all income levels and age groups.
• May help your position in non-discrimination testing.
• Reduces employer payroll taxes because funds are contributed pre-tax.

What about the benefit to the participant?

• Auto enrollment and escalation allow participants to save for retirement when they may not have done so otherwise.
• Allows participants to “set it and forget it” if they are offered both automatic enrollment and escalation.
• Participants can defer paying income tax until they withdraw funds in retirement if they save pre-tax in the retirement plan.
• Allows participants to take advantage of the company match or how we like to promote it, “free money.”
• Sample Participant Language – Did you know that you can “Set it and Forget it?” Take advantage of auto escalation if your plan offers it. You may be able to make an election to increase your contribution by one percent each year (or whatever percent you choose) and this takes the thinking out of it. Your initial action takes care of the rest, and you can add a cap for the final percentage. Each year your election will increase on its own and you can time this around your annual merit increases so you don’t feel any impact.

Spending and Savings Habits
Unpredictable factors like market performance, health issues, and life expectancy can make saving easier said than done, so how can we as plan sponsors help our participants make better use of their money especially in times when the market is in a downturn? Helping them to examine their spending habits and create a budget may help them prioritize saving for retirement. Employee education is key. Connect with your recordkeeper, retirement consultant, and/or PSCA for participant educational resources on financial planning of everyday finances.

• Sample Participant Language – If you don’t have a budget, make one and make sure your 401(k) contribution is listed as an essential item! Pay your future-self first before enjoying your specialty coffee or your next impulse buy. You will be glad you did when you can retire comfortably, and on time!

Often employees make statements such as: The market is down so why would I? I had to put my retirement on hold during the pandemic and have not been able to get back to it. I am putting retirement planning on hold and will start it when I get a little older and make a higher salary. Addressing these concerns directly can help employees take the first step towards savings.

• Sample Participant Language – The market being down is the best time to invest. You can get more shares for your money, and you can take advantage of the magic of compounding interest the earlier you start. The more time your money has to grow, the more opportunity there is for those earnings to earn additional money. The money you save earns interest. Then you earn interest on the money your originally saved, plus the interest you have accumulated. As your savings grow, you earn interest on a larger pool of money. This means if you start early, you do not have to set aside as much money as you would later on in life.

Employer Match
Periodically it is important to review your employer match to ensure you are remaining competitive to gain top talent and provide great benefits to your employees. The second piece to that is making sure your employees know what the match is and the benefits of taking advantage of that match. As mentioned previously, employee education is key to getting the best outcomes for success in your retirement plan and your participants’ financial futures.

• Sample Participant Language – When you are considering how much to contribute to your retirement account, take advantage of your employer’s match. This is free money toward your retirement so don’t make the mistake of leaving money on the table.
• If your employer offers a 3 percent match, contribute at least 3 percent, and once you reach the match, aim to increase your contributions each year.
   

Consider a Financial Advisor
Does your record keeper or retirement consultant offer financial advice to your employees? Many have programs like this available to participants that you can add into your agreement for an additional fee.

• Sample Participant Language – Why should you consider a financial advisor? Investing mistakes can be costly, so it is always wise to consider using a financial advisor. Consult a professional with investment management experience and knowledge of tax strategies so they can help you make the most of your savings.
   
• There is often a misconception that financial advisors only support the highly compensated workforce or that advisors have an up-front cost; however, you may be surprised to learn that advisors support all wage earners and in many cases there is no up-front cost! Additionally, the retirement plan being offered to you may come with the benefit of a financial advisor. Financial advisors can be the freedom you need to help make the choices necessary to enjoy retirement life.
   

Don’t forget about the Health Savings Account (HSA)
Do you offer an HSA to your employees and if so, does it have an investment piece tied to it? Most vendors today include an option to allow participants to invest their HSA funds after they reach a certain amount. There are so many benefits to the participant in having an HSA:

• Triple tax advantage.
• Tax treatment of HSAs provides the potential for greater investment growth and greater after-tax balance accumulation versus other retirement or health care savings options.
• Offers another retirement savings vehicle.
   
• Sample Participant Language – Want to save more? The Health Savings Account (HSA) is another tool available to you that can help with healthcare costs now and in retirement. An HSA is full of tax benefits. You can contribute to it tax free, balances accumulate tax free, you can use it tax free for eligible expenses, and it is yours for life. And, most employers offer the option to invest the funds from your HSA once you reach a certain balance.
   

A little bit goes a long way!
Here we go back to employee education again. A little bit goes a long way. Ensure you are educating your employees on compounding interest and the benefits it offers.

• Participant Language - I am sure you have all heard this saying before, but it is true. Compounding interest! Start early! Make your money work for you! Do not wait – something is better than nothing!
• It is not always easy, and with the challenges of life you may have to adjust how much you contribute to your retirement at any given time, but the longer you wait the less you will have so TAKE ACTION NOW and set yourself up for a happy retirement.

Impact of Social Security

Experts say you will need 70-90 percent of your pre-retirement income to maintain your standard of living at retirement.  You may need more or less than that depending on factors like taxes at the time of retirement, withholding taxes, healthcare, and significantly, Social Security.

Encourage your employees to check their Social Security history, although they may be participating in Social Security with you now, they may not have been with their previous employers.  Some employers do not pay into the Social Security System. 

The Social Security Administration calculates your benefit by looking at how much you've earned throughout your life. The amount will be higher the longer you wait to apply, up until age 70. The timing is up to you and should be based on your own personal needs. You can check your Social Security account to see how much you'll get when you apply at different times between ages 62 and 70.

There are two Social Security provisions that may reduce or even eliminate a person’s Social Security benefit – the Windfall Elimination Provision (WEP) and the Governmental Pension Offset (GPO).  If the employee or their spouse have paid into the Social Security System, encourage them to contact a Social Security representative to determine if the WEP or GPO apply to them. Ask if there are any exceptions to the GPO that could eliminate the offset to their spousal benefits. You want them to be prepared to balance out the potential effects of these provisions with personal savings when they retire.

• Sample Participant Language – Make it a habit of reviewing your record of earnings with Social Security at least once a year. You want to make sure the Social Security records of your yearly income is up to date. You can go to the Social Security Administration website to register and log into your personal account.
   

As a plan sponsor you are responsible not just for administering and monitoring your retirement plans, but also communicating those plans to your employees. Today there is a large emphasis on education related to retirement savings, explaining how the retirement benefits work, and general financial wellness. Employees will have the greatest success with increasing the likelihood of having a bright financial future if their employer, who they trust, provides them with the tools and education they need. Don’t hesitate to ask your employees what they want. You will have a better chance of providing the plan design, communications, and education that will resonate most with them. Tailored communication is key to your success as a plan sponsor and your participants’ success with their finances.

 

Melissa Hudson, MBA, CPSP™, is the Corporate Director of Benefits, Herschend Family Entertainment.
Lenora Hernandez, PHRca®, CPSP™ is the Human Resources Director for Don Roberto Jewelers.
Maria Quitugua, MEd, CPSP™, is a Training Specialist for the Public Employee Retirement System of Idaho.