Your Employees Need to Save More, and Here's How You Can Help Them
The U.S. Bureau of Labor Statistics says that the millennial generation – those generally considered to be between the ages of 18-34 – now makes up the majority of today's workforce and will represent three out of every four workers by 2030. Millennials are considered to be very tech-savvy, multicultural, and hard-working. Study after study confirms the importance of work-life balance and family to this generation and their needs for more flexibility, independence, and mobility on the job. These same studies also detail some of the largest challenges facing this generation. Like student debt.
The numbers are staggering. According to this report from Debt.org, a non-profit financial wellness organization, the average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year. All in all, 44.2 million Americans are carrying about $1.44 trillion in student loan debt. The typical borrower is burdened with an average monthly loan payment of $382 – that's about $4,600 annually after tax – a daunting figure for anyone graduating from college who didn't land a well-paying job. This is why more than 11 percent of students fall into delinquency on the amounts they owe.
The student debt crisis is fueling another big problem: people – your people – aren’t saving enough money for retirement. According to a report this year by the Economic Policy Institute, the median savings for all working-age families in the U.S. is just $5,000. Experts recommend a retirement nest egg of at least ten times one's salary and yet the median retirement savings of families between 56 and 61 is just $17,000.
Can companies be doing more? We should be. But unfortunately, and particularly in recent years, much of our attention (and our resources) has been diverted toward healthcare. That’s not surprising. In fact, the Kaiser Foundation says that the average cost of a family healthcare plan has increased from about $11,000 per year per employee in 2006 to $18,000 in 2016. A Willis Towers Watson study released recently confirmed that where retirement plans used to be the dominant employee benefit, it’s changed places with healthcare insurance.
Back in the day, companies would provide defined benefit pension plans where an employee would be guaranteed an income after retirement age. Because of the enormous liabilities created by these plans, most private companies (as well as many governments) have pivoted over the past two decades toward defined contribution plans, where a specific amount is contributed by both the employee and the employer to an employee's retirement account, most commonly a 401(k). The contributions (and the level of future income) are usually not guaranteed and depend on how much is contributed. Retirement savings have plummeted.
And many of my clients are suffering the effects of this trend firsthand. Their older employees are forced to keep working and while their experience is valued, they sometimes are not able to do the work of their younger colleagues, particularly if the work is more physical in nature. Some of these employees, because they're not able to retire on their own, look to their employers for further assistance, even if it means doing part-time or contract work.
While people are not saving enough for retirement, smart employers are starting to wake up to this issue and doing something about it. Are you?
One big way is to tackle student debt. That’s what many employers are doing. The larger ones are creating plans that provide thousands of dollars of student loan repayments for their employees. Smaller companies are contributing less… but they’re beginning to contribute something. This is an employee benefit that you need to seriously consider. With the labor market tight and millennials in demand, smart employers are recognizing that this benefit is not only a great way to keep their current employees motivated and stable, but it also provides a powerful recruiting tool.
There are plenty of solutions available to help you do this. Employers that offer this benefit use services such as Peanut Butter to help them with the administration. Such cloud-based platforms connect with most student loan services and other financing arms and integrate with payroll software. Once set up, an employee's loan payment can be automatically deducted from their paycheck and sent along with an employer's contribution.
Your employees – particularly the millennials that comprise a growing part of your workforce – aren't saving enough, and you can't entirely blame their spending habits. It's critical that you create benefit programs that not only help them reduce their debts, but encourages them to save for their retirement. It's the right thing to do. And it's good business.