As the oldest members of the Millennial generation are headed into their forties, encourage increased saving efforts via 401(k) plans.
Unprecedented Challenges—and Possibilities Too
Millenials have been the largest generation in the US labor force since 2016, according to the Pew Research Center. Born between approximately 1981 and 1996, Millennials are now in the 24-40 age range. Their paths to employment have been challenging and unique—and the opportunity to participate in 401(k) plans is key to their retirement prospects.
As Plan Sponsor has reminded us, after incurring large student debts, Millennials faced the dot.com bubble burst in 2000—as they entered the job market. Then they were hit by the Great Recession of 2008. Now, of course, they are navigating the pandemic and related economic challenges.
Added to all this, Millennials are also expected to have longer life spans, making it even more important to save for a thriving older age.
The Value of Employer Sponsored 401(k) Plans
Employer sponsored retirement plans play a critical role in preparing Millennials—and everyone—to thrive in their older years. While all kinds of retirement savings matter, 401(k) plans have a unique role. As Investopedia explains:
The less you invest in a company retirement account, such as a 401(k) plan, the more you will have to save overall.
With a 401(k), for example, millennials can contribute up to $19,500 for 2021 as a tax-deferred benefit. If they do not have access to a 401(k) plan and need to use an individual retirement account (IRA), they are capped at saving $6,000 a year in a tax-deferred account for 2021.
This means that more will have to go to a taxable savings account, thus decreasing the account’s compounding effect, as you have to pay taxes on any interest income or capital gains. Plus, you miss out on the assumed employer match in the above calculations, so you will have to save that percentage on your own also.
Plan Sponsors Light The Way in 2021
Try to make a special effort to encourage millennials to contribute the maximum to their 401(k’s) in 2021. If your company is not already providing an employer match, can you start doing so—even if modestly? If you already offer a match, can it be increased? The match is an important incentive to your employees, especially as everyone works to steer out from the impact of COVID-19 in the year ahead.
If you are both the plan sponsor—and a millennial, go ahead and lead by example, as you look at your own retirement savings contributions. Remind everyone that even tiny increases in regular contributions add up. Also, be sure you are headed into 2021 fully covered—and ready to grow the retirement plan!
Confirm, for example, that your required ERISA fidelity bond is up to date—and properly covers your plan. Colonial Surety Company offers a user-friendly, digital and direct service. You can easily and quickly purchase your bonds and related insurance coverage online.
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the ERISA bond required to protect the assets of the retirement plan from theft; Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach; and, Fiduciary Liability coverage to protect you and your assets from personal liability.
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