IRS Allows Higher 401(k) Savings for 2015, But Will Your Workers Seize the Opportunity?
The Internal Revenue Service (IRS) raised elective deferral limits for 2015 to $18,000 from $17,500 for this year. The catch-up contribution limit for employees aged 50 and older who participate in 401(k), 403(b), and many other federally regulated savings plans rises from $5,500 to $6,000 — especially important for baby boomers now achieving or nearing retirement age. This means that participants born between 1946 and 1964 could contribute as much as $24,000 annually to their 401(k) accounts, not counting an employer’s matching contributions.
The bad news, however, is that workers aren’t saving as much for retirement these days, particularly employees older than 50. A Mercer study of 1,506 U.S. retirement plan participants who also receive health benefits showed that workers aged 50+ have decreased their anticipated 401(k) contributions by more than 18 percent. Older 401(k) participants cite health care expenses in retirement as their biggest financial worry. “This concern has even surpassed ‘saving enough for retirement’ itself as the financial problem most likely to keep older respondents awake at night,” survey authors noted.
Retirement Readiness a Major Workforce Issue
Indeed, more than three-fourths of large and midsize U.S. companies with 401(k) and 403(b) retirement plans point to retirement readiness as a major issue for their workforces. Poor saving habits and personal money problems compound the issue of insufficient retirement funds.
Lack of money-management skills is a woe reaching beyond the United States. The 2011 MetLife Study of Financial Wellness Across the Globe noted that, worldwide, only 38 percent of people are saving for old age, only 50 percent have a financial plan and nearly 20 percent don’t know where their retirement income will come from. Only 12 percent of employers indicate that their employees know how much they need to fund a secure retirement; 53 percent of employers worry that older workers will have to postpone retirement.
Employers Can Educate, Promote Retirement Saving
As an employer, you can turn that concern into action. Companies can improve the financial wellness of their staffs through compensation and benefits. And by enhancing your employees’ financial health, you may well boost the fiscal vigor of your company. Financial stress in your workforce can harm your business’s productivity even if you can’t easily measure it via return-on-investment calculations.
Help your workers plan and save for their retirement years. If you haven’t implemented them already, consider some or all of these action steps:
- Offer a 401(k) retirement plan — Even small companies can include a 401(k) plan in their benefits roster. A 401(k) plan allows participants to save and invest a portion of each paycheck with pretax dollars. Employees — and potential hires — value a retirement plan. A 401(k) makes your company more attractive to job seekers, boosts employee retention, and offers you tax savings. Many 401(k) plans today make saving easier than ever. A quarter now have an automatic enrollment feature, a 12 percent increase from 2009, and automatic contribution increases account for about a third of savings hikes.
- Provide financial education and other services — Think brown-bag lunches with guest speakers addressing topics such as personal finance, the basics of 401(k) plans, and how individual retirement accounts (IRAs) work. Help give your workers the information they need to make sound financial decisions. Consider applying mobile technology or games to capture the interest of younger workers. Give staff access to — and encourage them to use — an online retirement calculator.
- Offer a Roth IRA in your benefit package — Roth IRAs provide tax-free investment growth. Educate your workers about Roth IRA advantages, since nationally only about 11 percent of employees avail themselves of these programs.
- Tailor your company retirement plan to boost participation: Consider automatic enrollment, contribution flexibility, profit sharing, and personalized investment advice from your plan provider.
- Compile a list of resources for employees with money woes — The Federal Trade Commission is a good place to start, as is usa.gov, with guidance on family support, housing, health care and insurance, debt and credit, and more. Nonprofit debt.org is another user-friendly resource. Most communities, too, have local sources of information and help.
As an employer, you can play a pivotal role in helping your workers plan and save for their retirement years. Look out for your workforce and reap benefits in employee loyalty, improved retention, and higher productivity. Besides, it’s just the right thing to do.