Demonstrating the effectiveness of a strong retirement plan can benefit your organization and employees alike.
Securing our financial future via employee retirement planning is something we all should strive for. Yet, statistically speaking, most employees do not. While over 30 states have considered legislation that would establish a state-run retirement plan, to date, California, Illinois, Oregon, Connecticut, Maryland and Massachusetts are the only states that have enacted legislation establishing a state-run plan program.
Many employers understand that offering retirement savings plan (RSP) options can be a difference-maker in attracting and retaining employees. Further, aiding employees in their retirement planning can help to increase engagement, aid in retention and demonstrate proper fiduciary responsibility — all while helping individuals prepare for retirement.
For the human resources professional or team in charge of managing a firm's RSP portfolio, convincing key stakeholders that employee retirement planning is making a difference for the staff and organization alike can be complex. It requires many considerations, including:
What retirement savings plan options are offered.
Understanding which measurements to track concerning the RSPs available to staff.
An overview of the employee population.
Who the organization's key stakeholders are.
Retirement Plan Options Offered
While it may seem obvious, knowing which retirement savings plans are currently being offered by an organization is fundamental. The plans offered — IRAs, ESOPs, 401(k) plans, 403(b) plans, etc. — and the particulars of those plans (cost, legal and tax implications) determine the pros and cons of each. This information will help guide human resources professionals toward which measurements are critical to track.
Measurements to Track
Once it's clear what retirement savings plans are being offered, HR can start to pinpoint which metrics are important to track, and why. They should be tied to the organization's strategic plan. Some measures that may be worthwhile to capture can include:
Participation rate (the fraction of employees who are enrolled in a retirement savings plan).
Contribution rate (the fraction of available income that employees dedicate to their RSP).
Retirement readiness (analyzing a participant's current RSP balance and constructing a projection by which it can be compared to the projected amount of money needed to live on when retired).
These and other metrics can help provide an overview to leaders, showing them where a firm's retirement savings plan strategy is or isn't working. This overview can also be used to determine how effectively the RSP meets the demands of the employee population.
The Employee Population
To better understand if an organization's RSP options suit the needs of the employees, it's important to understand employee demographics. This analysis may highlight opportunities within the organization's population. For example, which job categories may be more or less likely to participate in retirement planning offered by an organization? Utilizing data to assess how employees are participating in their retirement planning will help when it comes to effective engagement with them and other key stakeholders.
Knowing all of the above information won't mean much without engaging with key stakeholders throughout the organization. It's important to have an understanding of who those people are and where they fit into an organization's retirement planning strategy. Without that knowledge, driving initiatives (such as increasing participation rates) can be more challenging.
Key stakeholders may include, but are not limited to: recruiters, HR professionals, managers (senior as well as front-line), third-party providers and employees. With a varied audience comes the need for effective communication.
It's important to have the right communication framework to educate and empower different groups on an organization's portfolio of retirement savings plans. For example, appropriate metrics will be a must-have for those who have fiduciary or strategic oversight of the RSPs. This includes plan sponsors, HR and key senior leaders. As such, easy-to-understand and accessible reporting (such as through a dashboard) would be helpful.
For plan participants, having multiple methods learn about or manage their RSPs would help ease the anxiety associated with planning for one's financial future. Giving employees different options — from offering brochures or handouts, to scheduling live sessions where staff can meet with a subject matter expert — helps to increase engagement. Diversity is key.
Digital tools must be considered. The advantages of having the right technology include ease of use, built-in compliance features, data security and reporting capabilities. Taken together, these communication methods can be used to drive and deliver personalized services to support employee retirement needs.
Regardless of role or responsibility, a retirement planning strategy must be reviewed and updated consistently in order to be effective. Have a clear vision of success and measure performance against it. If members of the organization are to implement this, they must fully understand and support the strategy. Staying abreast of any changes — such as plan updates or relevant legislation — and communicating them to relevant parties as appropriate will save time and effort.
Demonstrating to an organization how effective retirement planning makes a difference can be challenging. When done well, it can allow for different partners to maximize the value gained from participating in the retirement savings plan. For employees, this may mean increased engagement, less financial anxiety and retention. For business leaders, a quality retirement planning program can serve as an attractive incentive to job seekers, as well as current staff.
For more information on what type of financial wellness programs may be the most impactful for your business, watch The Power of Financial Wellness [Webcast], available on demand, or download the whitepaper, here.