Employers can improve workers’ financial readiness for retirement by using tools available to them, according to Valley Forge, PA-based Vanguard.
The investment adviser’s most recent edition of How America Saves, a report on 401(k) plan design and retirement savings habits, provides insights into plan design opportunities that employers can use to boost their workers’ retirement preparedness.
“There is no doubt that plan sponsors’ efforts over the last two decades have helped improve the retirement readiness of millions of Americans. However, workers’ needs are evolving and so too should plan design,” said John James, managing director and head of Vanguard Institutional Investor Group. “Plan sponsors are uniquely positioned to support their employees’ financial well-being with integrated tools, advice and services that can help improve their overall financial peace of mind.”
According to Vanguard, contribution retirement plans cover more than 100 million Americans and have $11 trillion in assets, making them “the centerpiece of the private-sector retirement system in the United States.” In this type of plan, an employee contributes money and the employer typically makes a matching contribution of some percentage of the employee amount.
Vanguard suggested that plan sponsors consider adopting plan design features such as higher default rates, immediate eligibility and vesting, and integrated financial well-being services. The authors also suggested automatic enrollment combined with higher initial deferral rates, an automatic increase feature and a total automatic increase cap of at least 10%.
The downside to encouraging 401(k) savings among their employees, the company said, is that most participants with 401(k) balances of less than $1,000 voluntarily or are automatically cashed out of their retirement savings when they leave an employer, compared with 7% of participants with balances of more than $100,000.
