Retail Retirement Plans Moving in Positive Direction
Saving for retirement is like exercising or eating right. We know we’ll feel better when we do it, but many of us fail to make it a priority. It’s all too easy to put off such matters until tomorrow. But after a string of tomorrows, we’ve lost valuable opportunities that would have benefitted us in the long run.
Whether in a retail setting, a trendy Silicon Valley tech headquarters, or a sleek Wall Street skyscraper, one thing holds true: When employees feel secure in their retirement readiness, they’re more engaged and focused on the job at hand. That alone should provide sufficient motivation for helping employees grow their nest eggs. Then, of course, there’s the desire to ensure those who have worked hard to make the organization successful are given every opportunity to plan for a comfortable retirement.
Retailers have long struggled with getting employees to save adequately for their golden years. In 2010, just over half (53% ) of retail employees participated in their employer’s retirement plan, according to Aon Hewitt’s Universe Benchmarks report, which tracks the savings and investing behaviors of more than 1.3 million eligible employees from 20 plans offered by retail employers.
Two primary factors are responsible for this lackluster showing. Typically, retail employees earn relatively low wages, leaving them with little “extra money” to invest in their futures. Someone who is struggling to pay their rent, buy a car, or purchase new school clothes for their children may find it hard to believe they can put money aside for retirement. In addition, many retail employees don’t plan to stay at a given job very long. That means they may leave the company before they even become eligible for the plan. And if they view their tenure at one retailer as a mere pit stop, they’re not likely to be focused on retirement savings.
Seeking to turn the tide, savvy retailers have embarked on initiatives to boost employee participation and contribution rates — and their efforts are paying off. Participation in defined contribution plans rose 5% in five years, reaching 58% in 2015. The average employee contribution rate also increased — from 5.8% to 6.4% during the same time-frame, raising the average plan balance from $27,580 to $38,820.
Just how are they doing it? By employing a multi-pronged strategy to prompt workers to save — and save rigorously — for retirement. Often, the first step is to remove any barriers that prevent employees from entering into the plan early in their tenure. While a one-year waiting period has been commonplace, retailers are increasingly paring that back to six months or even three months. Some have eliminated it altogether, allowing employees to begin participating in the plan from day one.
Many retail organizations have started building in defaults, such as auto enrollment, which, as the name implies, automatically signs employees up to have a percentage of their paychecks placed into a retirement savings account. Because this approach requires individuals to take action to opt out of the plan, it typically proves incredibly effective, resulting in participation rates as high as 90%.
Other retailers have adopted “Quick Enrollment” strategies wherein employees are given a postcard, slip of paper, or email, asking them to simply check a box to sign up for the 401(k) plan at a specified contribution rate. By doing so, they agree to be placed in the target-date fund most appropriate for their age. Some companies have even paired this with an automatic contribution escalation feature that increases the participant’s contribution rate 1% each year.
Once the participation requirements have been relaxed, it’s crucial to get the word out to employees and encourage them to begin saving for their retirement. A targeted communications effort often proves particularly effective, although it’s important to remember that retail employees are rarely deskbound with a computer at the ready, so email may not be the most appropriate vehicle.
A much greater response can be realized by reaching out to employees via their personal email or, increasingly, text message. This approach has proven especially effective among young employees, who are accustomed to managing virtually all aspects of their lives from the convenience of their smartphones. That said, retailers also continue to rely on traditional vehicles, like postal mail, along with signs and posters in employee breakrooms.
Regardless of the communication vehicles chosen, a number of organizations have found success by employing a little old-fashioned peer pressure. Messages to non-savers can begin with a question like “What are two-thirds of people in this organization doing that you’re not doing?” The answer? “Participating in the plan.” It’s always a good idea to accompany static communications with on-site meetings, such as “lunch-and-learns,” which allow the human resources staff to delve deeper into plan specifics and answer employee questions.
The communications effort that accompanies an employer-sponsored retirement plan presents an opportunity for HR to partner with marketing and craft a unified message that not only lays out the benefits of participating in the retirement plan, but does so in a way that’s consistent with the organization’s philosophy and brand. Taking a page from marketing’s external communications, the retirement initiative can employ the same colors, language, style and layout as the company’s commercial advertisements.
Along with boosting participation and contribution rates, retail organizations are striving to reduce instances of employees borrowing against their retirement accounts. Educating employees on the importance of leaving such funds untouched is critical to helping them achieve adequate retirement savings. Retailers are achieving some progress in this area. From 2010 to 2015, the percentage of retail employees with loans outstanding fell from 30% to 26%.
While improvements in participation and plan balances have been incremental, they are moving in a positive direction. Smart retailers are leading the way by making it a little easier for their workers to prepare for retirement.