It can be very exciting for employers to reach the stage in their business where they are able to provide a retirement plan to their employees. It can be equally disappointing if those employees don’t take advantage of the benefit. Learn how to create a savings culture where employees participate in their retirement plan.
 

The Employee Perspective

Saving is a challenge in anyone’s life, but especially when you’re saving for a benefit that you will not get to enjoy until years down the road, all while you are living paycheck to paycheck, trying to make ends meet.  For many, the deterrent for starting to save for retirement is rooted in the notion that you must part with a large portion of your paycheck.  But this myth could not be further from the truth.  It’s more important to start saving early than focusing on how much you start saving.

For others, English may be their second language.   Not having in-language materials or a person to guide you in what a retirement plan is, how it works or why it’s important is an obstacle that’s hard to overcome.  Retirement benefits should be explained in your native language, whether that’s done in writing, or by your Relationship Manager.

Lastly, for some employees who did take advantage of their retirement benefit, they may have had a bad experience with a previous employer’s retirement plan.   We often hear employee participants ask us, “When I left my previous company, I did not receive my full balance. Will this company keep some of my money as well?” 

Understanding Your Retirement Benefits

What causes this employee thinking?  Miscommunication or lack of communication are the biggest reasons people do not enroll in their employer sponsored retirement plan.  A couple of questions come to mind. 

• Was vesting explained? 
• Was taxation on distributions explained? 

Another is distrust that stems from the lack of awareness that every plan has its own Plan Document that governs the plan. Plan Documents set the ground rules for both the Employer and Employee in terms of what each can and cannot do within the retirement account. With these rules in place, it becomes easier to understand how it works, and trust forms.

Additionally, many employees don’t realize their company may offer employer contributions.  For those who are aware of this additional benefit, the qualifying details can be quite confusing at first glance.  For example, a company matches 50% on the first 6% and has a 3-year cliff in vesting.  What does that even mean? 

Just in case you are wondering, in plain language it means that you need to contribute 6% of your pay and in turn, the company will match 3%. And you will have to work for a minimum of 3 years to be able to get 100% of the employer’s contributions once you leave the company. (That’s not 3 years of participating in the retirement plan but 3 years working at the company.) However, if you decide to leave any time before 3 years of employment, any monies the company contributed are forfeited and removed from your balance. 

Taking Full Advantage of your Retirement Plan

Anyone can save for retirement.  Follow these 3 simple reminders: 

1. Participate– The first step is getting enrolled and participating in the plan.
   • Your employer (called a plan sponsor) may host a retirement education meeting or enrollment meeting.  Attend it!  The consultant or advisor on the plan can answer your questions and help you enroll. 
   • If you receive an enrollment packet in the mail, there should be a contact listed, call them for assistance. 
   • Materials are now easily attainable in Spanish.  Most recordkeepers have an 800 number with representatives that can translate in various languages. 
   • Pro Tip: When choosing an amount to contribute, if possible defer the amount needed to receive your employer’s full match/contribution.
2. Set Realistic Goals – When setting a goal for yourself, make it personal because it is. The end goal for everyone is the same, wanting to have money saved up for retirement but the path varies by person.
   • Ask yourself, “How much can I defer into my retirement account and still
     • put some money away into a savings account (because emergencies happen)
     • be able to pay the bills (a roof over our head is essential)
     • while still having some left over for a little fun (we work to live after all)
   • Start at a lower percentage to get a feel of the impact to your paycheck.  Then set a goal of increasing your percentage 1%, maybe 2% every year. It is easier to adjust to the smaller percentage increase every year than catching up on your saving 10 years down the road all at once.     
3. Simplify the Process – Many plans now have auto-enrollment, where you are automatically enrolled in the retirement plan at a minimal percentage.
   • Often times monies are invested in the plans Qualified Default Investment Alternative (QDIA), which most times is a Target Date Fund (TDF). The process could not be simpler for an employee to begin saving for the future, but key word there is begin. 
   • The plan has helped with the first step, getting you enrolled.   And participating, the second step is on you. That is engagement. 
   • The majority of times, your contribution (the deferral percentage) is not increased automatically for you on an annual basis.  You will need to register on the recordkeeper’s website to set that piece up or manually increase the percentage yourself. 
   • Pro Tip: Do not forget to include beneficiary information while you are on the website.

Friendly Reminder

Procrastination is everyone’s enemy, especially when it involves something we do not understand, are uncomfortable with or is not time sensitive.  I think back about how I enrolled into my first retirement account.  I can remember sitting at my desk, a year in on the job and the sales person I supported literally saying to me “Why are you not saving for your retirement?”   In my head I was thinking because I am 22 years old and have a lifetime before I have to think about retiring.  Plus that is shopping and going out money.  I was lucky enough that this colleague took the time to explain to me the importance of starting to save earlier.  I learned about giving your money time to work harder for you with compounding earnings over a longer period of time.  Sometimes that is what we need, someone to take the time to explain the benefit, answer our questions and guide us through the process. 

Plan Advisors are There for You

Almost all plans have a consultant / advisor that services that plan.  Reach out to them and ask for assistance either enrolling, reviewing your account or setting up a retirement goal.  It might take about 30 minutes but it will be time well spent giving you peace of mind that you are taking control of your future.