For younger workers, the prospect of retirement may seem like a distant possibility. Those entering the workforce now have another four decades and a host of life milestones – marriage, kids, buying a home – before they might tap into their retirement savings.
Many also need to pay down student debt.
It’s not that employees don’t want financial help. A recent PNC Bank survey found 76% of Generation Z – and a similar number of millennial and Gen X workers – are very or somewhat stressed about their personal finances.
“Employers are uniquely positioned (to help), but they also need to understand their unique workforce,” said Kaley Keeley Buchanan, senior vice president and head of organizational financial wellness at PNC.
She noted many younger workers are focused on improving their credit before saving for retirement or may be dealing with student loans or other debt first.
The survey, which included 505 firms with $5 million in sales and at least 100 employees, found 94% of firms offer retirement plans. Just 52% of firms offered an employee match, up from 46% in 2023.
“It seems to be a table stakes benefit at this juncture,” Keeley Buchanan said. Among employees with access, 81% took advantage of employer plans and 71% utilized their employer’s match.
As for how to make employees feel more secure about their financial futures, offering more benefits was a top response among both employees and employers in the PNC survey. Financial education was a top selection for employers while pay increases was a top option for workers.
“It’s hard for employers to compete on compensation and to compete on compensation alone,” Keeley Buchanan said.
The survey did find that 92% of Gen Z workers were more likely to stay with an employer that offers more financial wellness benefits, compared to 85% for millennials, 72% for Gen X and 64% of baby boomers.
Workers also listed financial planning and financial education as the second and third top benefits they want but don’t have. An emergency savings account was the top option.
On the other hand, just 6% of workers and 7% of employers said increased 401(k) contributions would make workers feel more secure in their financial future.
Increasing enrollment automatically
Federal legislation passed in late 2022 requires new employer-sponsored retirement plans to default to automatically enroll and escalate employee contributions.
“That, I think, is the biggest thing that an employer can do for retirement is getting young employees started early on, saving in the plan and then using the auto-escalation feature to get them up to an appropriate savings level,” said Bruce Lanser, senior retirement plan consultant in the Brookfield office of UBS Financial Services.
Lanser noted that when the idea of automatic enrollment first emerged, it was controversial. Many employers felt they couldn’t force an employee into their plan. However, he noted the key is that the change comes in how the question is asked: going from ‘do you want to opt in to saving?’ to ‘do you want to opt-out?’ Employees still have a choice.
Improving saving isn’t just a matter of changing the default option. How a company sets up its match also shapes employee saving rates. Lanser said research has shown the amount of an employer’s match matters less than the amount of contribution the employer is willing to match.
That means that if an employer matches 50% of employee contributions up to 4% of payroll, changing to a 100% match likely won’t have a big impact. However, if an employer were matching 100% of contributions up to 4% and changed to a 50% match up to 8%, employees would likely start saving more to max out their match.
Going beyond the numbers
Plan defaults and the structure of an employer match might help boost saving, but helping employees make the most of their benefit and associate it with their employer requires going beyond the dollars and cents.
Lanser said there are a number of ways employers can help make employees aware of their benefits, starting with discussing them more than just once per year. This could take the form of regular webinars on financial topics or with a newsletter that links to relevant material.
“Just seeing it, even if they don’t necessarily read what that article is, but seeing that there are resources available to them,” Lanser said, noting employees may recall seeing something about a topic when they need help.
Some employers are also offering rewards for employee engagement with benefit plans. This could be as small as offering points in an employee wellness program for those who have a beneficiary listed for their retirement plan.
Leaders within a company can also help demonstrate the importance of benefits. Lanser noted that at one client he visits every other month to hold educational meetings, the owner is always in attendance.
“That demonstrates his commitment to that particular topic, to their financial wellbeing, because he’s in it as well,” Lanser said. “It’s not ‘oh, here’s something for you people to go do.’ It shows his commitment, his involvement, that he cares about the people.”
Some firms are also now providing employees an annual benefit statement, Lanser said. This document can include information like how much an employer paid for an employee’s health insurance or company contributions to a 401(k) spelled out in dollar terms, not just percentages.
It also offers a chance to make employees aware of relevant benefits they are not using.
