Complaint #2: “I don’t know if I’m saving
enough.”
If we rephrase this complaint as a question “Am I
saving enough to retire?” the regrettable answer for most
American workers is “No, you’re not.” Consulting firms
and investment managers have differing targets for how
much “enough” is. For example, Aon Hewitt recommends
accumulating eleven times your personal income by
retirement at age 65. Another popular rule of thumb is
the 4% rate (i.e. if you have $1 million saved, you can
withdraw $40,000 each year safely). One thing everyone
agrees upon is Americans, in aggregate, are not saving
enough to fund retirement.
“employees are overwhelmed
and favor the simplicity of
automatic features”
Employers who want to encourage their employees to
participate in the retirement plan can use an auto-enroll
feature which places employees, by default, into the
retirement plan. Similarly, employers can also implement
an auto-escalate feature which automatically increases the
percentage of retirement savings contributions annually, up
to a pre-set maximum (e.g. 15% of salary).
The auto-enroll and auto-escalate features cannot
guarantee employees are saving enough. After all,
employees can opt-out of the plan. The best solution is
for an employee to actively engage with their participant
education program or meet with a financial advisor.
However, recent studies suggest these plan features
are increasingly popular with employers and their
implementation is having a positive, measurable difference
in retirement readiness for employees.
Complaint #3: “Am I getting the most I can
out of this?”
An attractive retirement plan is a key element for
employers trying to attract and retain key employees.
Many employers go beyond plan design improvements,
and offer tangible incentives for employees who participate
in the retirement plan. Specifically, many employers
offer a company match on employee contributions in the
retirement plan.
While a company match policy is a benefit, not all match
policies are equal. Obviously, increasing the company
10 | January-March 2012
match (say, from 5% to 7% of annual salary) adds a direct
benefit. Less obvious is the type of match: employers
may select automatic matching or discretionary matching,
which depends upon the profitability of the company and
the decision of an investment committee. It is essen