Is retirement out of reach? How employers can help workers shore up 401(k)s and savings

As we move through 2023, employees are struggling under the weight of inflation and rolling layoffs. As they hold their breath amid an uncertain economy, the idea of financial security — now and in the future — feels increasingly elusive. 

Fifty-seven percent of employees say finances are the leading cause of stress in their life, according to PwC's 2023 report on employee financial wellness. More than 80% of CHROs have taken at least one action to trim workplace costs, PwC found, including voluntary retirement and layoffs. It's a perfect storm of circumstances that have left workers at all income levels feeling financially unstable. 

"We have not faced a situation like this, frankly, since early in the Reagan administration," says John Lowell, a partner at October Three benefits and retirement consultancy. "A combination of rising interest rates, high inflation, job uncertainty — kind of everything is going wrong, from a personal finance standpoint." 

According to a recent survey by Shroders, American workers believe they'll need $1 million to retire comfortably, though more than half said they were on track to save less than $500,000. But just because employees are feeling stress doesn't mean employers can't offer  the tools to help them course correct their savings efforts, in the near-term and beyond.

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Kevin Crain is head of retirement research and insights at Bank of America, and while he has seen some reactionary savings behavior from folks as the economy wobbles, it's less than he anticipated, and still largely a small minority. In 401(k) plans that Bank of America administers, three times as many employees have continued increasing their contributions as compared to decreasing, according to quarterly data. Hardship withdrawals and loans happened at a higher volume in 2022 than years past, but represented less than 1% and 2% of participants, respectively. Still, he says, there are steps organizations can — and should — take to ensure that employees don't put savings on the back burner. 

"Things do need to happen to help people feel some level of confidence when it comes to their long-term savings, and one thing that has been proven true and doesn't dramatically change during economic crisis periods, is helping people by automating their decisions," Crain says. "Auto-enrollment and auto-increase can really bump people along in an orderly fashion and help them get over inertia, even in good economic times."

But inertia can work in more ways than one. Deanna Allison, director of benefits, well-being and financial programs at Bread Financial tries to use it to her advantage when it comes to helping Bread's 7,500 associates prepare for retirement

"If you do something automatic, employees tend to not back out because they're scared of doing something wrong," she says. "But it can also stop them from saving in the first place, because they're still afraid of doing something wrong."

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To counter any hesitancy when it comes to saving, Bread focuses on sharing shame-free, digestible communications with its employees. Rather than tapping into guilt employees already feel about not saving enough, Bread focuses on what is likely possible. ("If you can save 1%, that's fine," Allison says. "That's better than nothing.") Steady messaging complements that tone, and drives employee comfort around financial wellness, from impromptu discussions at meetings to benefit-focused graphics on a company homepage, or even an in-person chat with a Vanguard expert.

"We want them to hear a steady message about savings in bite-size increments," she says. "If they hear about a 401(k) [issue] on the news, that's the worst outcome for us, because the only thing they hear is panic." 

Regardless of an organization's approach to savings, it's clear that communication is always key. At Microsoft, where participation rates in the tech giant's 401(k) program exceed 90%, the company is bucking industry trends and does not currently embrace auto-enrollment. Instead, Microsoft achieves those levels through targeted employee communications, says Fred Thiele, corporate VP of global benefits and mobility.

"We will not bother someone who is already in our 401(k) plan with a mailer that says, 'Hey, are you in the plan?' because they'll be like, 'Yeah, and you should know that,'" he says. "Instead, we'll send specific messaging to folks who aren't in the plan. We'll send another message to folks who are in the plan but not deferring at the full limit, leaving money on the table. For folks 50 years and up, we'll message them about catch-up contributions."

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But saving doesn't happen in a silo, and employers should consider how finances intermingle with other parts of employees' lives, and with other parts of their benefits package. As an example, Crain points to caregiving, a growing responsibility among a fast-expanding portion of the workforce, and one whose impact is felt among mid-career women in particular — a demographic that already has just two-thirds the savings of their male counterparts, according to Bank of America data.   

"There is a reasonably good amount of money that comes out of your pocket as a caregiver, and this often happens when a loved one gets older, and the employee is in their mid- or late career," he says. "Companies should realize that caregiving benefits can keep employees engaged; financial planning benefits can help them plan in advance; and keeping them working can help them continue to save appropriately in retirement plans. It's all interconnected."

For employees' own version of that puzzle, Lowell urges workers to consider the complete package of pay and perks that comes with a job, and not to over prioritize cash compensation without fully grasping the available benefits.

"If your employer is making benefits available but you have to self fund — like with a high-deductible health plan and an HSA — all that pay doesn't look so good anymore," he says. "Would you rather have a traditional health plan with a $500 deductible rather than a $3,500 deductible for an HDHP? It's a very personal situation, but it's one to strongly consider." 

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Financial education can play a huge role in countering those employee concerns, and it's a vital area that Crain says employers should spend more time on, no matter their career stage. For new employees, simple financial education — budgeting, savings, spending, debt management — can make a significant impact in their financial futures, he says. But pre-retirees are too often overlooked, and companies may be stepping in to help folks prepare to transition to retirement too late. 

"Companies start to help people when they're 60, 61, 62 — but if they don't have enough saved up, that's almost too late," Crain says. "Pre-retiree programs that start at 50 or 55, you still have time to build your balance, take advantage of government programs that can help with catch-up contributions, and really help people understand Social Security and Medicare. Our research shows that maybe 40% of employees really understand those programs, but employers should take on a larger role in pre-retiree planning and include those concepts."

While achieving true financial security may feel like a moving target for employers and employees, a regular stream of two-way communication can help both parties close in on their goal. For all the proactive and targeted communication Microsoft shares with its workforce, Thiele notes that they also turn to employee resource groups to better understand individual communities' needs and struggles, and discuss more immediate financial concerns as well, such as emergency savings. 

"Employees appreciate this kind of messaging and communication because it speaks to who they are, and not some straw person of who they are," he says. "Financial wellness is an indispensable element of holistic well-being." 

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