U.S. Savings Crisis Highlights the Importance of Workplace Retirement Plans
The current workforce — including business owners and employees — aren't saving enough for retirement in the United States. Is there a savings crisis brewing?
The Federal Reserve Bank's most recent report on the Economic Well Being of U.S. Households estimates that one quarter of non-retired adults in America have no retirement savings or pension. According to a GoBankingRates 2019 survey of 5,000 Americans, more than half stated that they had less than $1,000 in savings. The most common reasons given for not saving revolved around lower earnings; many seem to have trouble covering their current living expenses, let alone put away extra for retirement. And, consistent with previous years, the most recent Retirement Confidence Survey by the Employee Benefit Research Institute found that one-third of Americans still wonder whether they'll be able to cover basic living costs when they retire, although there was a slight improvement noted in some of the data measures.
State-sponsored retirement plans
In response to concerns over the impending retirement crisis, some state governments have stepped in and taken action. Ensuring that all workers have access to a retirement plan is the first step toward encouraging saving and averting a future crisis. A rise in state-sponsored retirement plans and related legislation have attempted to meet worker demand for more robust retirement plan options. For example, Oregon has required that every employed individual in the state have access to a retirement savings plan. To assist employers in meeting this obligation, the state has rolled out OregonSaves, a government-sponsored plan. California and Illinois have also set up similar plans for certain workers who lack access to a retirement savings plan through their employer.
Offering a retirement plan as part of your employee benefits package
When offered as part of a total benefits package, retirement plans are one way to help employees prepare for their future. Smaller employers can add a basic retirement plan option that can help improve hiring and retention of top employees. With 401(k) plans in particular, there are many routes you can go when setting up and servicing a plan. Integration with payroll makes servicing and compliance easier than ever. What’s more: the recent SECURE Act provides the most significant retirement savings reform legislation in 15 years, offering benefits such as a larger tax credit for employers who set up new retirement plans, longer adoption time, and more.
In addition, as some states now require certain employers to offer a plan, companies will need to understand and comply with newly enacted laws regarding retirement benefits. In many cases, offering your own plan will meet the state requirements. Providing access to state-sponsored plans like OregonSaves may be an option, but these state plans give employers less control over plan design and fees.
Making changes to an existing 401(k) plan
Just offering a retirement plan option to employees may not be enough to encourage them to save. Younger staff may not be thinking about retirement and established workers may already feel that they're stretched too thin to save. Employers need to offer plans that will yield tangible benefits and take the time to communicate how a retirement plan can provide long-term financial security. If your current plan hasn't gained traction, it may be time to upgrade to another option. Adding a company match or new investment choices can increase interest in your plan. Or you may want to revamp your plan in its entirety and bring in a new provider. The benefits of switching 401(k) providers may include cost savings for both companies and employees, along with increase participation and better savings results for your staff.
2020 401(k) contribution limits
If your company does offer a retirement savings plan, communicating the benefits to employees is essential. Contribution limits have increased slightly in 2020, and employees can contribute $19,500 to employer sponsored retirement plans. Those 50 and older may contribute up to $26,000, including an additional catch-up contribution. By keeping updated on the latest retirement plan changes and providing updated information to plan participants, employers can help their staff spread their contributions more evenly throughout the year and achieve their annual savings goals.
Employers play a crucial role in helping U.S. workers avoid a retirement savings crisis. Company-sponsored defined contribution plans like 401(k)s are an essential part of achieving a healthy retirement in America. Retirement plans are a key benefit that many potential employees look for prior to joining a company. If you'd like to review your current offerings or consider adding a new plan to your benefits package — particularly with the passage of the SECURE Act — consider retirement plan services available on the market today.