Transamerica Institute Retirement Report Reveals the Current State of 401(k)s

Quick look: The importance of retirement savings is a crucial factor among today’s multi-generational workforce. An August 2022 Transamerica Institute report reveals employers are eager to support financial well-being in an effort to attract and retain talent. Thus, brokers are faced with the challenge of providing clients with cost-effective, sustainable solutions to meet the diverse array of demands.

For most employees, retirement savings remains top of mind, especially post-pandemic as reserve financial resources were depleted and work environments dramatically shifted. Fortunately, employers realize though the expectations and costs of employee health benefits may be higher, the return on investment has increased as well.

A new report from Transamerica Institute reveals 81% of employers feel the responsibility of helping their employees maintain long-term health and well-being, which includes providing financial safety in addition to physical and mental wellness services and support. As brokers guide their small- and medium-sized (SMB) clients during open enrollment, holistically addressing employee health benefits is essential in supporting their recruitment and retainment strategies.

The availability of retirement savings is often a deciding factor for candidates when choosing a company. Here’s a glimpse of the report’s “Current State of 401(k)s and Other Retirement Benefit Offerings” which shows how both employers and employees are addressing their investments.

57% of employees face competing financial priorities

Financial priorities keep over half of employees from saving as much as they want. They struggle with balancing a need to pay off credit cards and/or student loan debt with building back emergency savings and contributing toward their retirement.

27% of employees indicate they’re only able to cover basic living expenses and are unable to put anything aside for the future. Meanwhile, 37% of employees have taken an early withdrawal from their 401(k) plan or IRA due to financial hardship, though 82% of employees remain confident they’ll be able to achieve a financially secure retirement.

80% of employers look at retirement benefits for attracting talent

On the other hand, employers are well aware of the allure of retirement benefits to attract top talent. 80% believe offering a 401(k) or similar retirement savings plan is strategically essential, with large- (52%) and medium-sized (58%) companies more likely to offer retirement benefits than small businesses (42%). In addition to recruitment potential, employers find there are advantages to offering 401(k) plans as part of employee health benefits for retention purposes as well:

• 57% want to help employees save and prepare for retirement
• 55% believe offering retirement benefits increase job satisfaction among employees
• 50% feel it inspires loyalty among employees
• 49% view it as a way to retain existing employees

Therefore, 55% of employers offer a 401(k) or a similar employee-funded retirement plan with employee-funded plans offered by large- and medium-sized companies (89%) at rates of 92% and 89%, respectively, compared to small companies (46%).

Ways SMBs can help their employees save for the future

Despite the percentage discrepancy, SMBs constantly seek ways to fulfill employee needs. To support their clients, brokers who work with a professional employer organization (PEO) partner add value, resources, and expertise which present opportunities where they can remain competitive in a more cost-affordable way.

Expand retirement benefits to part-time employees

Retirement benefits are typically extended to full-time employees only. However, employers have begun to extend eligibility to those who work part-time. 56% of SMB employers offer a 401(k) or similar retirement plan to part-time employees compared to 25% of employers who do not extend the eligibility. One reason for this change is the SECURE Act.

For companies with up to 100 employees, the SECURE Act provides a tax credit to help offset the costs of providing a 401(k) plan. It also requires plan sponsors to extend eligibility to part-time employees with at least three years of service. Since 2021, employers have been required to track service years, making the first long-term, part-time workers eligible for retirement benefits in 2024.

Implement auto-enrollment

To encourage employees to take advantage of retirement savings programs, 23% of employers have adopted automatic enrollment; 33% of which are large companies versus are SMBs at 20% and 23%, respectively). However, among all company sizes, the median contribution rate is 10% with 75% of plan sponsors adopting an automatic increase of participants’ contribution rates annually. Of those who do not currently have automatic enrollment, 54% plan to implement it in the future.

Provide retirement savings education

There are four generations making up today’s workforce which results in a varied array of life changes. 68% of employees would like to receive more education and advice on how to reach their retirement goals. For example, the Saver’s Credit is available to eligible taxpayers who are saving for retirement in a qualified 401(k) plan or IRA. However, only 43% of employers are aware of this tax credit and actively promote it to their employees.

Partner with a broker

Employers rely on industry expertise to guide their employee benefits and retirement savings plans making broker relationships invaluable. 68% use a professional advisor to help choose their company’s retirement plan with most using a broker (46%).

To expand upon their quality of service, brokers who have a PEO partner like ExtensisHR can present a wider range of opportunities for their SMB clients to help them stay competitive and up-to-date on all things HR. ExtensisHR handles all HR responsibilities including payroll, benefits, and compliance services in a way tailored to meet each company’s specific goals.

Customized employee health benefits inclusive of 401(k) or other retirement savings plans help SMBs stand out from their competitors. However, upholding the needs and wants of today’s employees requires a full-time effort and a people-centric approach. As a broker-friendly PEO partner, ExtensisHR implements flexible HR solutions to protect SMB client relationships and support company growth. Our team of experts is here to help.