By Mark Olsen, Managing Director at PlanPILOT
There’s little doubt that company culture and workplace benefits are undergoing a profound evolution today. As younger generations become a greater part of the workforce, companies will need to adjust and adapt their benefit programs to their needs if they want to retain young talent.
One area that PlanPILOT first examines for clients in this regard is the company-sponsored retirement savings plan. Younger workers may feel more pressure to depend upon their own savings and investments to secure a financial future instead of Social Security. In addition, many features may be added that address their own particular needs (such as paying down student loan debt) and their values (such as socially-based investments).
Here are recommendations that may appeal to younger workers.
Make Saving for Retirement Easier
While younger workers may be quicker with technology and have a head start on investing than their parents did at the same age, they still may need assistance in getting started and navigating the ever-changing investment world. Consider implementing these tools:
- Auto-enrollment: Even small payroll deferrals can help get a retirement account started and build confidence that regular contributions and compounding can work. Get younger eligible workers started, especially if you can also provide a matching contribution.
- Matching contributions: Don’t be stingy with the employer match. A 6% salary matching contribution sounds a whole lot better than 3%, even to a younger person.
- Financial wellness and investing education: Help younger workers make sense of a changing investment world with interactive web-based educational tutorials, webinars and videos. Bring in financial experts who can not only discuss investing, but other relevant topics, such as debt management or a first home purchase.
- Implement student loan match programs: Younger workers face a dilemma in whether to contribute to their retirement accounts or pay down student loans and forgo the employer match. To make the choice easier, the SECURE Act 2.0 allows for employers to make matching contributions based upon the worker’s student loan repayments instead of payroll deferrals to their retirement account. The worker gets the best of both choices.
Enhance the Plan’s Investment Menu
Limited choices of fee-heavy insurance-based mutual funds are financial dinosaurs in the retirement plan space. Make sure your plan offers modern features to attract young workers’ attention.
- Offer a Roth Option: Younger workers may not need the annual income tax deduction as much as they want tax-free retirement resources. Include a Roth 401(k) feature to allow this choice. SECURE 2.0 also allows employees to designate their employer match and nonelective contributions to a Roth contribution within their account.
- Include index-based investments: Actively managed mutual funds are still the predominant type of investment holdings within retirement plans, but low-expense index-based funds and “exchange-traded funds” (ETFs) are growing in popularity. Younger workers are well aware of these advantages and may prefer index funds.
- Consider adding socially responsible investment choices: Today’s younger generation may be more socially and environmentally aware and want their investments to reflect their values. Environmental, social, and governance (ESG) investments consider factors such as environmental and societal impact when choosing holdings—something younger people consider important.
- Increase the “menu” of investment choices: A major complaint about older plans is the limited choice of investment options, particularly in the fixed-income space. Make sure your plan includes a reasonable variety, perhaps with some alternative asset classes that may help with diversification objectives.
- Include target-date retirement funds: Target-date funds (especially as a default investment choice) allow a one-choice solution for those inexperienced with investing and may reduce enrollment anxiety. These funds provide wide diversification and a time horizon-based allocation that adjusts to a more balanced or conservative selection as the participant gets closer to their anticipated retirement age.
Implement Technology Tools and Features
Today’s younger workers live in a technology-based world. It’s how they communicate with each other and organize their lives, particularly through their smartphone. Any aspect that cannot be accessed or managed via their phone will be a hindrance to them.
- Your retirement plan should be tech-friendly: Plan features need to include an “app” for quick retrieval with a thumb press and access via a user/password app as well.
- Easy to find and read statements or change investment choices: As Steve Jobs demanded with his 3-click rule for Apple products, make sure participants can find what they want in their account easily.
- Include video tutorials or education materials: Younger participants embrace TikTok not only for entertainment, but to access and share information. Capitalize on this by including instructional or other types of videos to disseminate information or help them learn how to best utilize their retirement plan benefits.
In conclusion, by understanding the needs and preferences among younger workers, employers can demonstrate their commitment to their satisfaction by offering relevant features and enhancements to encourage retirement plan participation and retain young talent. Plan sponsors can also help fulfill their fiduciary obligation for proper oversight and management of their retirement plan and be confident they’re not missing important deficiencies that could hamper their plan’s effectiveness with their young workers.
We Can Analyze Your Plan and Improve It
Are you ready to upgrade to a new standard for your benefit planning and company retirement plan? Reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.