This article was updated on July 24, 2018.
Successful retirement outcomes are certainly important to today's workers. That's clear from the value they place in financial benefits to help them get ready to retire. In fact, according to the Employee Benefit Research Institute (EBRI), most Americans saving to retire rely on the 401(k) plan provided by their employer as a major source of their income for later in life.
Why should retirement outcomes matter to your business? Here are three big reasons:
- Financial stress hurts worker productivity. Your employees are your business' most important asset – and keeping them engaged and productive is critical to your success. According to The American Psychological Association, when you consider that many workers struggle with current expenses and debt, have little to no emergency savings and are not on track to have enough money to retire, it's no wonder 72 percent of Americans cite money as their biggest worry. This financial stress can impact your bottom line. PwC found that, one in five employees report stress from personal finances distracts them from work, and 37 percent spend three or more hours per week dealing with these issues at work. Those lost hours can add up.
- Retirement readiness encourages healthy employee turnover. Workers lingering in the workforce out of necessity — rather than desire — to continue working may be less engaged and productive. EBRI reports that there is a large gap between workers' expectations of when they will be able to retire and retirees' experience. However, when workers are financially prepared, they can confidently transition out of the workforce, which allows other workers to grow into new opportunities and can keep your workforce robust, engaged, and productive.
- Retirement outcomes measure plan success. While retirement plans offer many benefits for employers in terms of attracting and retaining talent, the ultimate purpose of the plan is to help workers successfully save for the future. That's a big responsibility, and retirement outcome data can give you answers about whether you're doing a good job at meeting it. Reviewing plan metrics like "Percentage of employees on track to replace 80 percent of their income" and "Income replacement ratio" provide insight into participant preparations to retire, plan effectiveness and how you are doing as plan fiduciary.
Ready to get started? Here are some ideas for improving outcomes:
- Offer a retirement plan. Workers who have a retirement plan at work are more likely to save for the future, and have more savings to retire, than those who do not, according to EBRI.
- Implement smart plan design. Automatic features get results, and they are widely accepted by employees.
- Communicate progress. Meaningful information, like personalized income statements and calculators, help participants determine whether they are on track and make decisions that can lead to better retirement outcomes.
- Help with financial skill building beyond retirement planning. Workers need help with financial planning from their working years to when they retire. Building skills needed for budgeting, managing debt, saving for expenses and retirement planning can help employees create a holistic financial strategy and improve overall financial security.
- Measure and improve plan effectiveness. A regular plan data review can provide valuable insight into retirement outcomes and plan effectiveness. With the help of your plan provider, applying plan design solutions and targeted communications can improve results.