Starting early and saving consistently are the keys to building a solid nest egg for retirement. Data continues to indicate that employer sponsored plans that utilize automatic enrollment and escalation are moving the needle, and provisions in the SECURE 2.0 Act require both for most new plans. Sponsors of older plans can make a difference too.
Reluctant to Opt Out…
When employees are automatically enrolled in benefit plans, and must choose to opt out, they tend to stay in, which means they start saving sooner than if they put off, or somehow never get around to enrolling. In fact, research from Principal found that automatic enrollment is more successful than “any type of education or advice,” with
“81% of participants in plans serviced by Principal” indicating “that automatic enrollment helped them start saving sooner for retirement….” According to Principal, “once automatically enrolled, 94% of participants stay in the plan.” While the SECURE Act requires both automatic enrollment and escalation for most new employer sponsored retirement plans, businesses with “old” plans can support better saving practices for workers too. For example, Teresa Hassara, Senior Vice President of Workplace Savings and Retirement Solutions at Principal Financial Group, suggests these two tactics:
Adjust plan design to default new employees into their employer-sponsored plans with the option to opt-out rather than leaving it as a choice when hired. The greatest success comes when automatic escalation is included in the design. Reason being, automatic enrollment will get employees into the plan and then automatic escalation provides a gradual approach to increasing their deferral rate while generally not having a large impact on their paychecks.
Re-enroll (or auto-sweep) employees who are not participating in the plan to make another conscious decision to contribute or not. Similar to the concept of annual elections for benefits like health, dental, and vision, re-enrollment would allow employees to re-evaluate their previous approach to retirement saving to gain alignment with their financial goals.
Of course plan design features that encourage saving are most successful when accompanied by helpful, and ideally, tailored information. Indeed, employees appreciate receiving financial education in the workplace, as Hassara reminds us:
Individuals tend to have a high degree of trust in financial professionals, retirement plan
service providers, and employers. It’s important that our three entities continue collaborating in ways that better help people start and move along their financial journeys with confidence.Access is the starting point for every conversation about financial security and saving for retirement. But we must also engage individuals with a broad array of education, tools, communication, and advice to support and serve them based on their diverse relationships to money and levels of financial confidence. The more personalized and tailored those experiences can be, the better outcomes we believe can be created to support their financial futures.
Given the topsy-turvy nature of the past several years—and competition for recruiting and retaining workers, plan sponsors around the country have been actively working to implement changes. For example, according to Fidelity’s research, “95% of sponsors are expecting to make adjustments in the remainder of the year,” and the most notable adjustments include:
- 26%: Increasing the matching contribution
- 26%: Increasing the auto-enrollment deferral rate.
- 26%: Beginning to offer an income replacement fund.
While reviewing and updating the retirement plan, it’s wise for plan sponsors to add protection for themselves. Law experts remind us that anyone and everyone involved in the administration of the plan can be held personally accountable under the high standards of ERISA. Don’t let a mistake or oversight–even one made by third party providers–find you without defense. Though allegations are not an automatic indication of wrongdoing, mounting a defense is expensive and burdensome, becoming only more so as cases slog along for years. With dismissal a dim hope, experts agree that proactive protection is now the best move for plan sponsors, and Colonial Surety is here to help with affordable Fiduciary Liability Insurance. Armed with this coverage, for a few dollars a day, you’ll have coverage for defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Cyber Liability coverage is included at no extra cost, providing additional protection–for the plan and your company–against regulatory actions related to data and privacy, as well as expert response services.
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Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country. Serving customers since 1930, we are the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time.