Do Sweat the Small Stuff

There’s a saying — “Don’t sweat the small stuff.” But small things, over time, matter. Stalactites and stalagmites grow slowly, drop by drop depositing more material, until they are sizable indeed. And this applies to employer actions, as well. 

Employers can have an impact on employees’ retirement readiness, recent analyses illustrate. They offer suggestions regarding steps employers can take that may seem small, but that can contribute to participation in a retirement plan and to building retirement savings. 

The recent Great Resignation — the bleed of employees from the workforce — has many consequences for employers. Fidelity in a recent workplace thought leadership blog entry suggests that modifying retirement plan design can help an employer to staunch that flow. “Plan design matters,” says Fidelity. In boldface.

And in the process of modifying plan design, an employer can bolster employees’ future retirement security. Fidelity says that in the late summer of 2020, it found in a study of nearly 4,000 employees enrolled in a 401(k) or 403(b) that modifying plan design could increase participation. Why did unenrolled employees not participate? Almost half of them said the plan did not appeal to them or that they are saving for retirement outside the plan. 

Action Steps

Fidelity suggests plan elements an employer can adjust and actions they can take to make plan design a more effective tool to serve employers’ and employees’ needs. 

Matching Contributions

What kind of match an employer makes is more important than what percentage of an employee’s salary the employer contributes to an employee’s retirement account, argues Fidelity. They found in a 2021 study that matching employee contributions dollar for dollar or 75 cents to the dollar was more effective in attracting and keeping employees. 

Employers grasp the importance of making contributions to employees’ retirement accounts, Fidelity says.The firm reports that in a 2021 analysis of 22,000 corporate defined contribution plans that 86% of employers provided a contribution even in the face of pandemic-related economic stresses.

And contributions matter to employees too.  In a November 2021 survey of approximately 13,000 workplace participants, Fidelity found that the retirement plan and employer contributions were the biggest factors that contributed to their overall financial wellness. 

Eligibility

Fidelity suggests adjusting eligibility — allowing employees to participate in the plan immediately, and making them eligible for an employer contribution during the first year of employment. 

Vesting 

Employers — and employees — could benefit if an employer consider its vesting practices and how they affect recruitment and retention. The firm further suggests that shortening the amount of time that must elapse before an employee is vested could be an especially potent tool with younger employees, who it suggests may not plan on staying with an employer for a long time. 

Automatic Features

Auto-enrollment can sharply increase participation, Fidelity says, citing its study of 23,761 corporate DC plans in which it found that 52% of employees participated in plans that did not automatically enroll employees in the employer’s retirement plan, while 87% did when the plan included automatic enrollment as a feature. Similarly, they say, auto-increase can enhance participants’ ability to save for retirement. 

Employee Engagement 

Willis Towers Watson stresses the importance of employee engagement in retaining employees, and suggests that providing digital communications concerning employees’ benefits and accounts would be more effective in keeping them engaged than a traditional annual total rewards statement, since it would be more personal and allow interaction. 

Similarly, the actuarial, and employee benefits firm Bolton argues that ease of communication is a factor an employer should consider when working to retain employees through a retirement plan.