How employers can address the retirement readiness gap

Posted on July 15, 2016 · Posted in Blog

image-401k retirement mazeNot surprisingly, the recent 2016 BlackRock DC plan survey showed a continued gap between how employers perceived the effectiveness of their retirement plans and how employees felt about their own retirement readiness. We see this all the time while speaking with plan sponsors. They often feel that as long as they are providing a 401k plan or something similar for their employees, they have done their part to ensure their employees are well on their way to saving enough for their retirement. In a perfect world this might be the case, but we don’t live in a perfect world and just because you provide the vehicle to someone, doesn’t mean they know how to drive it or even where they are going.

Here are some of the key findings of the study and some possible solutions both plan sponsors (employers) and participants (employees) can take to start closing the retirement readiness gap and get retirement goals on the right track.

  • The study found that 64% of plan sponsors believed their participants understood how much money they would need to put aside for their retirement, while just 37% of actual participants felt they had a good handle on the subject.

Retirement plan providers have spent millions of dollars to offer all types of calculators, tools and investment help. However, if no one is educating the participants on how they can utilize them, then it means nothing and the readiness gap will continue to grow. Plan sponsors should work with their 401k providers and advisors to ensure that the plan participants have these tools and more importantly, that they understand how to use them to determine how much they need to save for retirement and what is a realistic goal for them individually.

  • The study also found that participants understood that there was a gap between what they needed to do and what they were doing to prepare for retirement, but they struggled to find the way and didn’t feel their employers were doing enough to help.

This finding is encouraging because in order to address a problem, you have to recognize there is one. Clearly, participants are becoming more aware of the issue and hopefully, plan sponsors and their advisors are listening. There has been a lot of focus in the news on transparency and finding the cheapest funds for 401k investments to minimize fees. However, specific education on retirement planning is still the critical piece. Employees must gain a better understanding of their needs and how the retirement plans being offered can help them achieve their goals. And the best way to do that is with targeted educational materials.

When plan sponsors provide information tailored to the individual and their age group, we have seen that participants are more willing to read the material and focus on getting a better understanding of how it relates to them. Mailers and educational materials must be customized for the different demographics of a 401k plan. One size does not fit all. A message for a baby boomer will not resonate in the same way with a millennial and vice versa. A cookie cutter approach means some participants won’t feel the information applies to them and thus, won’t give it appropriate attention.

Building a stronger educational base targeted to the needs of the participant is the key to closing the retirement readiness gap. Plan sponsors, participants and advisors all have a role to play. We are all responsible for making a true and meaningful retirement a reality for employees.

In our next post we will look at some other ways that we can start to bridge the retirement readiness gap.

Does your company have a 401k plan or is looking into offering one? Contact us for a consultation.