Seven Ways Employers Can Do More to Help Workers Prepare for Retirement

Retiree Reflections: Seven Ways Employers Can Do More to Help Workers Prepare for Retirement

by Catherine Collinson | Transamerica Institute and Transamerica Center for Retirement Studies®

ow are retirees financially faring? Only 18% are very 1. Offer a Retirement Savings Plan confident that they will be able to maintain a com- Offering an employer-sponsored retirement plan, includ- fortable lifestyle throughout retirement, according ing a defined contribution (DC) plan, is one of the most effec- Hto findings from a 2018 survey of more than 2,000 retirees tive ways to help workers save for retirement. When today’s re- conducted by nonprofit Transamerica Center for Retirement tirees entered the workforce approximately a half century ago, Studies (TCRS).1 defined benefit (DB) plans were more prevalent and 401(k) The retirees surveyed are relatively young at age 71 plans had not yet been invented. By the time that 401(k)s (median), and most are in good or excellent health. They are became available, current retirees’ careers were already well enjoying life and pursuing their retirement dreams. How- underway. Looking back on their experiences, less than half ever, they are financially vulnerable. Among the retirees who (49%) of retirees participated in an employee-funded plan, are fully retired, more than half did so before age 65 and were deprived of additional time in the workforce to earn income and benefits—and save for retirement. AT A GLANCE A common theme emerges that employers could have done more to help them prepare for retirement. Many of the • Many retirees are financially vulnerable, with one survey workplace retirement savings plans and features available to- showing that only 18% are very confident that they can day did not exist decades ago when retirees were entering maintain a comfortable lifestyle throughout retirement. the workforce. Nevertheless, a closer examination of retiree • Offering an employer-sponsored retirement plan is one of experiences through the lens of current employee benefit the most effective ways employers can help workers save offerings, based on findings from the TCRS 2017 survey of for retirement. more than 1,800 employers, illuminates seven specific ways • Employers also should consider offering a variety of benefits that employers can do more to prepare their employees for to promote long- and short-term financial security and being retirement. an “aging-friendly” employer.

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FIGURE 1

Participation in Retirement Benefits for the Majority of Working Career (Retirees)

EMPLOYEE-FUNDED PLAN 49%

Employee-funded 401(k) plan 47% 68% had any type of retirement bene t Other employee self-funded plan (e.g., SIMPLE, SEP) 3%

21% COMPANY-FUNDED DEFINED BENEFIT PLAN 37% had both an employee-funded and a de ned Company-funded de ned bene t pension plan 35% bene t plan Company-funded cash balance plan 4%

Other <1%

None. My employer did not offer any retirement bene ts. 32%

Only responses greater than 1% shown. Retiree base: All qualied respondents. Question 1180. Which of the following retirement benets at your employer(s) did you participate in for the majority of your working career? Please select all that apply. Source: Transamerica Center for Retirement Studies survey.

such as a 401(k) or similar plan, for the with $4,000 among those who did not. fer plans and (2) encouraging all plan majority of their working years. Even (Household savings includes individual sponsors to extend plan eligibility to fewer (37%) participated in a DB plan. retirement accounts (IRAs), 401(k)s, include part-time workers. The TCRS About one in five (21%) participated 403(b)s, bank accounts, brokerage ac- survey of employers found that 65% of- in both an employee-funded and a DB counts, etc., and excludes home equity.) fer a 401(k) or similar plan and, among plan, and 32% of retirees were not of- The annual household income of retir- them, only 41% extend eligibility to fered any retirement benefits (Figure 1). ees who participated in a plan ($43,000 part-time workers (Figure 3). Retirement income and household estimated median) is almost twice as Concerns about cost top the list of savings are low among retirees. Howev- much as those who did not ($14,000 employer reasons for not offering an er, the disparities are extreme between estimated median) (Figure 2). employee-funded plan (58%). Cost con- those who participated in a retirement Expanding retirement plan cover- cerns and the high turnover rate among plan for the majority of their working age to all workers continues to be a part-time employees are the most often careers compared with those who did top priority among industry experts cited reasons for not extending eligibil- not. Among those who participated in and policy makers today. Solving this ity to part-time workers (both 42%). a plan, the estimated median house- issue requires a two-fold approach: Establishing a plan is more afford- hold savings is $148,000, compared (1) encouraging all employers to of- able than employers may think. Small

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FIGURE 2

Total Household Savings (Excluding Home Equity) by Participation in a Retirement Plan (Retirees)

18% 4% 12% 14% 14% 2% 4% 6% 7% 7% $1 million or more 7% 10% 4% 7% 8% $750,000 to less than $1 million 8% 6% 12% $500,000 to less than $750,000 11% 10% 11% $250,000 to less than $500,000 9% 11% 11% 12% 32% $100,000 to less than $250,000 12% 8% 9% $50,000 to less than $100,000 7% 7% $1 to less than $50,000 17% 17% 16% $0 13% 18% 6% 5% 5% 3% Participated Participated in an Participated in a Participated in an Did not in a plan employee-funded DB plan employee-funded participate in plan and a DB plan a plan Not sure 6% 6% 6% 5% 7% Declined to answer 16%13% 14%11% 16%

Estimated median $148,000 $166,000 $187,000 $336,000 $4,000

Retiree base: All qualied respondents. Question 1310C1_1a. Approximately how much money does your household currently have in the following? 1. Household savings excluding home equity. Please include IRAs, 401(k)s, 403(b)s, bank accounts, brokerage accounts, etc., and any other savings in your household. Source: Transamerica Center for Retirement Studies survey.

employers with 100 or fewer employees ployees (SIMPLE) IRA. Multiple em- to part-time employees in a cost-effec- may receive a tax credit of up to $500 ployer plans (MEPs) also hold promise tive manner, financial professionals and per year to help with the startup costs to help close the gap. The survey found benefit advisors can help employers for the first three years of a new plan. that among employers that said they determine the best solutions for their The retirement plan marketplace were unlikely to offer a plan in the next unique circumstances. offers a variety of solutions that can two years, 25% would consider joining address a diversity of employer needs. an MEP offered by a reputable vendor 2. Encourage Workers to Actively Employers that do not have the re- that handles many of the fiduciary and Engage in Retirement Planning sources to sponsor a 401(k) plan may administrative duties at a reasonable The financial standing of retirees is a be good candidates for setting up a sim- cost. reflection of their time in the workforce, plified employee pension (SEP) plan or Whether establishing a new plan or retirement benefits, savings, investment Savings Incentive Match Plan for Em- determining how to extend eligibility performance, life events, increased life

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FIGURE 3 It is imperative that employers educate employees about the need to actively engage in retirement planning. Retirement Benefits Offered to Employees (Employers) 3. Refresh and Promote the Availability of Retirement Education and Advice Employee-Funded Plan (Net) 65% Retirees have some regrets. Reflecting on their working years, 73% wish they would have saved more and on a con- 401(k) Plan 55% sistent basis, 64% wish they had been more knowledgeable Other Employee Self-Funded Plan about retirement saving and investing, 50% waited too long (e.g., SEP, SIMPLE, Other) 17% to concern themselves with saving and investing for retirement—and 44% would have liked more information and ad- Company-Funded Dened 13% Benet Pension Plan (Net) vice from their employers on how to reach their retirement goals. Company-Funded Cash Balance 9% Educational resources are more readily available today Pension Plan than when retirees were in the workforce. However, the sur- Separate Retirement Program for Select 7% vey findings reveal that employers may not be taking advan- Executives or Senior Management tage of resources offered by their retirement plan providers. Other 1% For example, only 51% of plan sponsors say they offer online tools and calculators to project retirement savings and My company does not offer income needs via their retirement plan provider’s website any retirement benets. 29% (Figure 5). Employer base: All qualied respondents. Education, advice and planning resources are among the Question 530. Which of the following retirement benets does your company offer? most competitive aspects of retirement plan offerings in to- Select all that apply. Source: Transamerica Center for Retirement Studies survey. day’s market. Whether starting a plan or monitoring one that is already in place, employers should stay abreast of the lat- est offerings from their providers to ensure they are taking expectancy and the extent to which they planned. More than advantage of them. It is also important that plan sponsors half (54%) of retirees had a retirement strategy before they widely promote these tools and resources to their employees, retired, but only 10% had a written plan. It also should be so that they too know they are available and how to use them. noted that retirees who participated in a retirement plan for the majority of their working careers (62%) were far more 4. Promote Short- and Long-Term Financial Security likely to have had a retirement strategy compared with those by Offering a Variety of Benefits who did not participate in a plan (38%). Financial wellness is a term that has relatively recently en- How much better off might retirees be if they had engaged tered the lexicon of the retirement industry, referring to an in retirement planning and had a strategy? Retirees who had individual’s financial health, including overall savings, debt a written plan before retiring have a total household savings and resiliency if faced with a major financial shock. of $553,000 (estimated median), more than triple that of re- Retirees are financially fragile, a condition that likely be- tirees who had an unwritten plan ($158,000) and shockingly gan during their working years and then followed them into 70 times more than retirees who did not have a plan ($8,000). retirement. Nearly two in five (39%) retirees cite “just getting Of course, having a retirement strategy is only one of many by to cover basic living expenses” as a current financial prior- factors that contribute to how retirees accumulated their ity, while 34% cite paying health care expenses and 29% cite wealth (Figure 4). paying off credit card debt. Furthermore, household savings

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FIGURE 4

Total Household Savings (Excluding Home Equity) by Type of Retirement Strategy (Retirees)

$1 million or more 12% 4% 28% 2% 2% $750,000 to less than $1 million 6% 7% 8% $500,000 to less than $750,000 7% 9% 12% 8% $250,000 to less than $500,000 16% $100,000 to less than $250,000 11% 30% $50,000 to less than $100,000 9% 7%

$1 to less than $50,000 7% 18% 6% $0 6% 15% 2% 6% Had a written plan Had an unwritten plan Did not have a plan

Not sure 2% 5% 9% Declined to answer 15% 15%16%

Estimated median $553,000 $158,000 $8,000

Retiree base: All qualied respondents Question 1310C1_1a. Approximately how much money does your household currently have in the following? 1. Household savings excluding home equity. Please include IRAs, 401(k)s, 403(b)s, bank accounts, brokerage accounts, etc., and any other savings in your household. Source: Transamerica Center for Retirement Studies survey.

among retirees suggests that few would wellness and employee assistance pro- Security. Two-thirds of retirees (66%) have the resources to cover the cost of grams also can help further enhance indicate it will be their primary source long-term care expenses if needed, and workers’ financial security (Figure 6). of income throughout their retirement. only 12% have long-term care insurance. Robust employee benefit offerings Among retirees currently receiving Employers can do more to help pro- can bring a powerful advantage in at- Social Security benefits, the median age mote financial wellness among their tracting and retaining talent, especially they started receiving benefits was 62— employees. In addition to offering retire- in today’s highly competitive market. the earliest age that most workers can ment benefits, employers should con- These types of employee benefits are claim Social Security. Only 4% started sider offering health insurance as well as readily available in the marketplace and receiving benefits at age 70 or older, voluntary benefits such as life, disability, worthy of consideration for employers with 70 being the age at which people critical illness, cancer and long-term that do not already offer them. can receive maximum monthly benefits care insurance. Workplace wellness pro- (Figure 7). grams that promote healthy and active 5. Educate Preretirees About The fact that so many retirees aging can help reduce health care–re- Social Security Benefits claimed benefits at the earliest possible lated costs and the need for care in the Retirees exist on a limited house- age at a permanently reduced benefit is future. Other benefits such as financial hold income and rely heavily on Social alarming. Education is imperative to

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FIGURE 5 general unhappiness) and/or took an incentive or buyout. Offerings From Company and/or Retirement Providers to Assist One way that employers can dem- Employees With Planning, Saving and Investing for Retirement onstrate their commitment to age- (Employers) friendliness is to adopt a diversity and inclusion policy statement that specifi- Quarterly statements 67% cally references age among other de- Online tools and calculators to project retirement savings and mographic characteristics. Only 23% 51% income needs on retirement plan provider’s website of employers have adopted such a statement, and almost half (46%) do not Informative emails 41% plan to do so in the future.

Professional advice on how to invest their retirement savings 41% With Generation Z, the youngest generation, embarking on their work- Informational seminars, meetings, webinars and/or workshops 32% ing lives and Baby Boomers extending their careers, there are four generations Mobile apps 29% in the workforce. This brings an excit- ing and extraordinary opportunity for Mobile apps to manage their accounts 21% exchanges of knowledge, experience Mobile apps that include tools and calculators to project and ideas. Fostering inclusive environ- retirement savings and income needs 18% ments and intergenerational collabora- Educational articles and videos that share ideas and insights on tion can be a powerful ingredient for 27% how to save and plan for a nancially secure retirement innovation and may help employers

Information on social media (e.g., Twitter, Facebook) 11% gain a competitive advantage.

Text messages related to their retirement plan 10% 7. Enable Workers to Work Past Age 65 With a Flexible Transition Into Retirement Other 4% Considering the extent to which Employer base: Offers 401(k) plan or similar plan. employers help their employees save Question 3605. Which of the following does your company and/or retirement provider offer to your employees to assist them with planning, saving and investing for retirement? Select all. and invest for retirement, it is surpris- Source: Transamerica Center for Retirement Studies survey. ing how little they do to help them transition into retirement. Two-thirds increase worker understanding of the for example, offering opportunities, (66%) of retirees said their most re- high cost, risks and consequences of work arrangements, and training and cent employers did “nothing” to help claiming early. Employers can play a tools for employees of all ages to be with their transition, and another 16% role in providing education about So- successful. In reality, many employers were “not sure.” The outlook is some- cial Security benefits, yet only 38% cur- may not be as aging-friendly as they what brighter for today’s preretirees. rently do so. think they are. More than half (56%) Employers are now beginning to offer of retirees retired sooner than they retirement transition assistance that 6. Be an Aging-Friendly Employer had planned. Among them, 54% cited can help workers extend their working Most employers (70%) consider employment-related issues (such as years. For example, 31% of employers themselves to be “aging-friendly” by, job loss, organizational changes and/or said they allow employees to reduce

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hours and shift from full-time to part-time as they transition FIGURE 6 into retirement (Figure 8). Retirement transition programs can benefit both employ- Employee Health and Welfare Benefits Offered ers and preretirees. While granting preretirees the opportu- (Employers) nity to continue earning income with the flexibility to retire 78% on their own terms, employers can involve them in succes- Health insurance sion planning, mentoring and training, thereby facilitating more seamless transitions. This is especially valuable in to- Disability insurance 43% day’s highly competitive, nearly full-employment labor market and will be for the foreseeable future as the critical mass Life insurance 43% of Baby Boomers retire. Employee assistance program 21% The Call to Action Americans have the potential to live longer than at any Workplace wellness program 18% other time in history. With strains on Social Security and the demise of traditional pension plans, workers must self-fund Critical illness insurance 16% a greater portion of their retirement income and extend their working lives beyond the traditional retirement age of 65. 16% Employers play an increasingly vital role in helping their em- Long-term care insurance ployees prepare for retirement, necessitated by these new reali- ties. Compensation and employee benefits—specifically, retire- Financial wellness program 12% ment benefits—can profoundly influence a worker’s trajectory for long-term financial security and retirement success. Cancer insurance 11% The retirement and employee benefits industries should continue to innovate and offer solutions that are easier to ad- Employer base: All quali ed respondents. Question 1021. Does your company currently offer any of the following? Select all. minister and affordable. Policy makers must pave the way by Source: Transamerica Center for Retirement Studies survey.

FIGURE 7

Among Those Receiving Social Security Benefits, Age at Which They Started Receiving (Retirees) 39%

Median age: 18% 62 13% 11% 7% 4% 3% 4% 1% Under 60 60-61 62 63-6465 66-69 70 Above 70 Not sure Note: Some people are eligible to receive Social Security earlier than 62 due to disability or death of a spouse. Retiree base: Receiving social security bene t payments. Question 1555. At what age did you start receiving income from Social Security bene ts? Source: Transamerica Center for Retirement Studies survey.

14 benefits quarterly third quarter 2019 International Society of Certified Employee Benefit Specialists Reprinted from the Third Quarter 2019 issue of BENEFITS QUARTERLY, published by the International Society of Certified Employee Benefit Specialists. With the exception of official Society announcements, the opinions given in articles are those of the authors. The In- ternational Society of Certified Employee Benefit Specialists disclaims responsibility for views expressed and statements made in articles published. No further transmission or electronic distribution of this material is permitted without permission. Subscription information can be found at iscebs.org. ©2019 International Society of Certified Employee Benefit Specialists

FIGURE 8

Which of the following, if any, does your employer/company have in place to help employees who are transitioning into retirement? (Employers)

Accommodate exible work schedules and arrangements 32% Enable employees to reduce hours and shift from full-time to part-time- 31% Encourage employees to participate in succession planning, 22% training and mentoring Enable employees to take on jobs that are less stressful or demanding 21%

Offer retirement-oriented lifestyle and transition planning resources 12% Provide information about encore career opportunities 10%

Other 1%

None of these 38% Employer base: All qualied respondents. Question 3615. Which of the following work-related programs, if any, does your company have in place to help employees transition into retirement? Select all that apply. Source: Transamerica Center for Retirement Studies survey.

implementing reforms as appropriate. By working together, AUTHOR stakeholders can create an environment in which future generations of retirees can enjoy a greater sense of financial se- Catherine Collinson is chief executive of curity than those who are in retirement today. ficer and president of the nonprofit Transam erica Institute and its Transamerica Center References for Retirement Studies® where she over Collinson, Catherine; Rowey, Patti; Cho, Heidi. A Precarious Existence: sees all research and outreach initiatives, How Today’s Retirees Are Financially Faring in Retirement, Transamerica Center for Retirement Studies (December 2018). including the Annual Transamerica Retirement Survey. She Collinson, Catherine. Striking Similarities and Disconcerting Disconnects: also serves as executive director of the Aegon Center for Employers, Workers, and Retirement Security, Transamerica Center for Re- tirement Studies (August 2018). Longevity and Retirement based in the Netherlands. With two decades of retirement industry-related experience, she About Transamerica Center for Retirement Studies Transamerica Center for Retirement Studies® (TCRS) is a division of has become a nationally recognized voice on retirement Transamerica Institute®, a nonprofit, private foundation. Transamerica Insti- tute is funded by contributions from Transamerica Life Insurance Company trends. She was named a 2018 Influencer in Aging by PBS and its affiliates and may receive funds from unaffiliated third parties. TCRS Next Avenue and received a Hero Award from Women’s and its representatives cannot give Employee Retirement Income Security Act (ERISA), tax, investment or legal advice. This material is provided for Institute for a Secure Retirement (WISER) in 2016 for her ef informational purposes only and should not be construed as ERISA, tax, forts in helping improve retirement security among women. investment or legal advice. Interested parties must consult and rely solely upon their own independent advisors regarding their particular situation Collinson co-hosts ClearPath: Your Roadmap to Health and and the concepts presented here. For more information please refer to www Wealth on WYPR, Baltimore’s NPR news station. She holds .transamericacenter.org and follow TCRS on Twitter at @TCRStudies. a bachelor’s degree in British and American literature from Endnotes Scripps College and an M.B.A. degree from the University of 1. See www.transamericacenter.org. California, Irvine. Follow her on Twitter: @Cath_Collinson. She is employed by Transamerica Corporation.

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