Finance

By Mark Olsen, Managing Director at PlanPILOT

The scope and structure of retirement plans evolved significantly in 2024 and this trend will continue unabated into 2025. One aspect receiving considerable attention is the concept that retirement planning is a shared responsibility of the employee and the employer and plan sponsors are increasingly motivated to implement new innovations to retain top talent and assist their employees in planning for their future.

This responsibility on the part of plan sponsors has also given rise to the need for companies to utilize the services of advisor firms, such as PlanPILOT, to provide customized strategies for retirement plan design, implementation, and governance. Here are the leading retirement plan trends we see emerging over the course of this year.

More Emphasis on Participant “Financial Wellness” and Education

The most recent Federal Reserve study on retirement readiness stated that nearly a third of American non-retired workers do not have any retirement savings and of those that do, the average balance is less than $100,000. Further, 35% of those surveyed felt they were worse off than the previous year and another third felt they were off track. 

Plan sponsors have responded with greater demand for educational and financial wellness tools for participants and this trend is expected to continue into 2025. Kevin Crain, Executive Director of the Institutional Retirement Income Council, believes that “a critical priority in 2025” will be to provide education and utilization studies that will help plan sponsors, consultants, and advisors implement such programs. In addition, these enhancements are expected to provide participants with user-friendly and AI-interactive planning tools that can help enhance financial wellness and retirement readiness for employee-participants. 

Greater Focus on Retirement Income Solutions

With the continued decrease in traditional defined-benefit pension programs available to participants that could provide a predictable and reliable source of retirement income, plan sponsors have been looking to evaluate and implement retirement-income solutions within their defined-contribution programs. 

This trend could accelerate as plan sponsors continue to consider product offerings such as hybrid target-date funds, customized annuities, lifetime income products, or systematic withdrawal options for participants. Tools that integrate Social Security income benefit planning and Medicare enrollment guidance are also expected to increase in scope, helping participants optimize their Social Security and Medicare elections. The demand for these types of options will continue to gain momentum in the coming year as demand by plan participants and their employers for personalized planning tools increases. 

Proper implementation will likely require support from consultants and advisors to provide evaluation and selection processes, as well as further studies and surveys to help educate plan sponsors about the benefits of such programs to their employees.

Look for More Enrollment and Contribution-Increase Automation

The success of auto-enrollment features in defined-contribution plans has led to increased participation among employees as well as higher overall plan savings. Expect plan sponsors to build upon these achievements in 2025 with additions of default auto-escalation capabilities within retirement plans, where a participant’s contributions may automatically increase year-over-year. 

Qualified default investment alternative (QDIA) choices will continue to evolve in the coming year. While not expected to broaden into retirement income options just yet, so-called “target-date” funds as the QDIA in retirement plans remain a popular solution for participants who are reluctant to make their own allocation choices and should continue to evolve in their composition.

Expanded “Catch-Up” Contribution Limits and Roth Focus

The SECURE 2.0 Act in 2022 provided significant changes to the retirement world, including increased contribution limits for those nearing retirement age. Beginning in 2025, employees aged 60-63 can make “catch-up” contributions that are 150% larger than normal catch-up provisions. These are in addition to normal contribution limits for qualified defined-contribution retirement plans. 

In addition, all catch-up contributions for those over 50 are required to be designated to Roth after-tax accounts within a participants’ overall account, starting in 2026. Plan sponsors should update their plans to comply with these provisions as well as update their educational programs to help employees understand and take full advantage of these valuable benefit options.

Utilizing Professional Assistance

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your unique needs and objectives. If you’re ready to upgrade to a new standard for your benefit planning, 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.

By Mark Olsen, Managing Director at PlanPILOT

Over the past decade or so, plan sponsors of retirement programs have sought to strengthen the company benefits provided to participants by adding features to both encourage participation and assist their employees with preparing themselves financially for retirement.

One of the more popular additions to programs, such as 401(k) and 403(b) plans, is the inclusion of “retirement readiness” calculators, which allow a plan participant to input data specific to their own financial situation (including retirement plan account balances, payroll deduction contributions, employer match, years to retirement, and expected rates of return) in order to obtain a “financial wellness” score. 

This analysis and “score” is designed to indicate to the participant how well (or not) they are saving and preparing for their future retirement. If there is a deficiency, the participant in theory would be able to determine how much they need to increase their contributions so their risk profile achieves a favorable score, or closer to “retirement readiness.”

Room for Improvement

While even simple analysis and guidance can be helpful to a worker-participant, many retirement-readiness calculators may be inherently flawed or misleading as to the score received and the results implied. For example:

• The scores may be wildly inaccurate if the data only includes the account within the employer plan (a plan-only calculator). Depending upon the provider of the plan, many calculators simply take the balance of the participant account, incorporate the contribution amounts, years to retirement, and an expected return based upon the investment mix selected. Default assumptions may be over-optimistic.
• Participants may have one or several other retirement-based accounts outside the plan that are not included; therefore, the results may show inadequate readiness based upon excluding these outside resources.
• The survey questions may not address or require input on other significant aspects of the participant’s financial life. This includes payoff of a home mortgage, credit card usage and other consumer debt, and significant “spending spikes” that may derail planned contributions at a later date, such as college financing for children, large medical expenses, or unexpected loss of employment. 

Further, many participants may have little sense or understanding about their lifestyle spending levels (even in the present, much less the future), as well as critical input factors, such as inflation or what their Social Security benefits may be or when they are claimed.

• The inputs may only request static data based upon current abilities to contribute to the retirement plan account. For example, a participant in their early years of employment may only earn modest compensation, allowing only for small monthly contributions to their retirement, whereas later in their career (with advancement and higher compensation) greater contributions (and employer match) might be possible.
• There are little to no industry standards that adequately address or quantify what it means to be “retirement ready,” and there can be wide disparity among providers of such calculators. This can vary widely among demographic sectors and areas of the country.

Work-Force Demographics Can Impair Effectiveness

The composition of the workforce can significantly impact whether a program retirement calculator is accurately portraying readiness. Younger participants earning higher compensation in a technology company may score higher in readiness than older workers earning and contributing less in more traditional blue-collar companies. 

In addition, plan sponsor management may have different perceptions of the effectiveness of their plans and employee readiness scores. For example, a low aggregate readiness score for an older, more conservatively invested workforce may dissuade plan sponsors from allocating further resources to the plan. Conversely, a high aggregate score for a newer, younger workforce (who have yet to weather a severe market downturn after selecting aggressive investment holdings with higher potential returns) might indicate “all is well” and the employer fails to understand the nuances behind the favorable data.

Inadequate Readiness May Not Lead to Increased Participation

A fair argument may be made by plan sponsors that imperfect guidance may be better than none at all; at least participants have the ability to understand simple reasoning why saving for retirement is important. Such employers might believe that as long as they have a retirement plan and a readiness calculator, that should be sufficient.

What is not well understood, however, is that even with an insufficient “readiness score,” participants may not have the ability to increase contributions or be reluctant to accept greater investment risk for potential better returns to help boost their score. A Paychex survey of over 800 employers indicated that while over 73% of workers believed they should be saving more for retirement, nearly 80% had no capacity to do so and that nearly a third of workers surveyed are not even concerned about retirement prospects so may not even bother addressing the issue. Interestingly, over 80% of those surveyed believe their retirement benefits were inadequate.

Achieving Accurate Data Requires Robust Tools

The success of a company retirement plan in truly serving and helping participants greatly depends upon providing sufficient tools and robust features within the plan to boost interest in participation and deliver meaningful results. Oftentimes, employers may lack the insight and understanding behind retirement plan programs to be able to craft a plan that truly suits their workforce and resources. Consulting with an experienced specialist in this area may yield customized solutions that result in a happier, more productive workforce.

Utilizing Professional Assistance

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your unique needs and objectives. If you’re ready to upgrade to a new standard for your benefit planning, 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.

By Mark Olsen, Managing Director at PlanPILOT

Behavioral finance is generally defined as the study of the influence of human psychology on decision-making in matters concerning money or finances, including the aggregate effect of a large number of individual decision-makers on financial market movements. It is based upon the theory that decision-makers (humans) are not always rational, cling to their biases or take cognitive shortcuts, and often succumb to emotional behavior or exceed their limits of self-control. 

These behaviors are often detrimental to successfully enrolling eligible employees into a company retirement plan, as well as encouraging participants, once enrolled, to remain in the plan and succeed in accumulating retirement savings for the future. By understanding how behavioral finance tendencies influence employee behavior in this regard and utilizing this understanding in plan design, plan sponsors can encourage higher participation and contributions by employees and assist them in their savings objectives.

Overcoming Human Inertia

The First Law of Motion, stated simply, is that an object at rest stays at rest unless acted upon by an external force. So it is with humans; we tend to stay with our status quo unless something compels us to act. Enrolling in a company retirement plan and deferring income to contributions (instead of spending today) can be intimidating and unpleasant to some participants. 

To counter this tendency, many plan sponsors have added automatic enrollment features into the plan once employees become eligible. As of the SECURE Act 2.0 in 2022, this feature is now required of all newly established qualified retirement plans. Studies have shown that auto-enrollment (even with an opt-out choice) dramatically increases participation rates within defined contribution plans.

Further, the effects of how this feature is presented to participants also matters. Structuring the alternative (to the default enrollment) as an “opt-out” tends to increase participation rates rather than the opposite (opting-in).

Help Participants With Loss Aversion

Loss aversion is a strong emotional behavior. The pain of loss has been shown to be twice the pleasure of potential gain. This tendency may deter employees from proactive decisions that could help them accumulate retirement savings. These include enrolling in the plan at all, choosing smaller payroll deferral contributions, or selecting overly conservative investment choices that could slow the growth of their account over time. Loss aversion also includes panic-selling of equity and other investments during inevitable market declines, often at what turns out to be market lows, which can be costly to a participant’s investment success.

Educational resources and access to investment advisors are two solutions to this issue. Equally important is to include risk tolerance assessment materials, information on market volatility, and interactive retirement account growth models that can help a participant understand the implications of contribution and asset allocation choices. Part of loss aversion is the fear of making a mistake when selecting investments or asset allocation. Providing education or the assistance of an investment professional can help alleviate this issue.

Overconfidence Can Lead to Poor Choices

Participant overconfidence can also be counter-productive to long-term success. There are those participants (due to age or inexperience) who have never directly endured a market correction and the emotional impact such events can cause. It is one thing to casually observe a correction in the news, but quite another to see the value of your own money decrease by as much as 30 percent over a short time period. Similarly, participants may expect more investment return than is realistic or choose investments with the belief that these “will always go up.” 

Just as with loss aversion, overconfidence can be resolved with educational materials, discussion with qualified investment professionals, and the other features mentioned above. Emphasis on historic and realistic investment return assumptions and potential downsides of aggressive investment allocations should be underscored.

The Benefits of Limiting Investment Choices

Retirement plans are often designed with wide varieties of investment options from a multitude of providers that appear to cover the spectrum of investment sectors. While the reasoning may be to provide suitable diversification and choice, the notion of “more is better” has actually been shown to deter participation, not enhance it. 

Even for those who profess to be “experienced investors,” sorting through a large menu of allocations or fund choices may be daunting. For inexperienced participants, too many choices (whether investment-related or even while enrolling in the plan itself) may provoke “decision paralysis” and trigger a psychological “flight” response where the employee declines to even enroll at all. Providing “target-retirement” funds as default investments may help participants who may be uncomfortable with such decisions.

Include Other Features to Improve Participation

Other enhancements to retirement plans can help participants improve their retirement savings success. Along with auto-enrollment, default contribution rates have been effective as a guide to enrollees of how much they might contribute each pay period to their retirement account. Many who are inexperienced with personal finance often ask their plan sponsor or the investment professional how much they should save in the retirement plan. A default contribution amount (which, of course, can be changed by the participant) can be a gentle guide at enrollment. Of course, such defaults ought to consider an available employer match and the advantages of maximizing that benefit.

Similarly, many plan sponsors incorporate a graduating contribution percentage schedule that helps a participant overcome inertia and assists them in achieving a higher savings rate over time. Such schedules might follow historical inflation and wage-increase data toward a target savings rate that might not otherwise be reached without a disciplined structure for the participant to approve and follow.

Utilizing Professional Assistance

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet their needs and objectives and those of their participants. If you’re ready to upgrade to a new standard for your benefit planning, 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.

By Mark Olsen, Managing Director at PlanPILOT

With the continued shortage of quality workers to fill emerging available jobs across the growing economy, companies are recognizing that retaining older workers as long as possible has become a greater necessity. In addition, managers and HR directors are realizing significant advantages of this growing employee demographic. Along with their accumulated wisdom and experience, late-career employees are still interested and able to stay employed. They also embrace desirable employee habits, such as a traditional work ethic, a duty of care toward their responsibilities, and steady reliability.

To incentify such individuals to stay, however, it may be worthwhile to revisit your benefits program and look at what upgrades or enhancements might be implemented to accommodate older employees in your workforce. Here are some suggestions.

Address Older Worker Healthcare Needs

It’s no surprise that healthcare benefits would be a primary concern for older workers and measures can be taken to address those needs. Contrary to what might be surmised, older workers are less prone to injury at the workplace than younger workers, but often take longer to recover from injury. Providing greater choice in healthcare options and allowing more time off for healing and physical therapy may be worth investigating. 

Having the company provide a higher percentage of health, dental, and vision plan premiums (maybe 100%) may also be advantageous. Depending upon the coverage, older workers may be willing to continue working if their employer healthcare coverage meets their needs, even if they qualify for Medicare benefits. Include coverage for physical and rehabilitative therapy.

To help older (or all) eligible employees with rising healthcare costs, implementing a health savings account program with employer contributions could be a significant benefit with several tax advantages. Employer contributions may be made whether or not a Section 125 plan is implemented. 

A Greater Interest in Insurance Coverage

Younger employees in the prime of their lives are generally less concerned about life and disability insurance, but you can be sure your older workers are quite interested in these benefits. Company-provided life and disability insurance are top-of-mind benefits for these individuals. Offering additional coverage at discounted rates may also be added.

Accident and critical illness plans would be attractive too. These insurance programs pay lump-sum benefits to workers who are either in a severe, debilitating accident or suffer prolonged illnesses, such as heart attacks, organ transplants, or cancer.

Encourage Retirement Saving With Matching and Education

Older employees naturally have less time than their younger colleagues to save for retirement. Offer them assistance with higher employer matching contributions and profit-sharing. Provide educational workshops on retirement income planning that explain the long-term benefits of payroll deferrals to retirement accounts and the higher contributions limits for those over age 50. Schedule regular visits to the workplace by investment advisors to the company plan and allow for work-time meetings so older workers can ask questions or receive updates about retirement saving, investing, and financial wellness.

Consider Legal Assistance As a Company Benefit

A lesser known but growing company benefit offered by most Fortune 500 companies is legal services. These programs can be flexible in design for the older demographic in the workplace, providing legal advice on topics specific to them, such as creating a Last Will or other estate planning documents, late-life divorce, or long-term care concerns. Individual attorney fees are expensive and getting to see an attorney outside working hours may be difficult. Arranging for legal consultations would be a welcomed and valuable benefit.

Flex-time and Other Benefits

Having flexibility in their work schedule remains a primary benefit for many older workers. At this point in their lives, maintaining a greater work-life balance is a priority, as well as the ability to schedule and meet healthcare appointments, making time to help with grandchildren care and activities, and attend to other personal or family obligations. According to a 2023 McKinsey & Company report, those 55-64 years of age cited “workplace flexibility” as the third most important reason for leaving a current job.

Providing learning and skill development programs may also be attractive to older workers. An AARP study found that the majority of older workers (especially those among minority populations) were keenly interested in learning new skills and interest increased into the 90th percentiles when employer support was provided. These conclusions help support the value of retaining older workers despite rampant accusations (over 70 percent of respondents) of age discrimination in the workplace—something every company would want to avoid.

Utilizing Professional Assistance

PlanPILOT is uniquely positioned to help employers customize and design benefit plans that meet your unique needs and objectives. If you’re ready to upgrade to a new standard for your benefit planning, 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.

By Mark Olsen, Managing Director at PlanPILOT

It’s no secret that the advent of remote work has forced a wide range of challenges and benefits to employers and employees. Both have realized the benefits of cost savings and flexibility and are also making adjustments to accommodate each other’s goals of productivity and accountability in this new environment. And studies indicate this trend will likely continue.

One area that may be lacking appropriate attention thus far is the effect of this new paradigm on retirement plans and employee saving behavior. Studies by investment companies such as Morningstar indicate that physical absence from the office environment may be altering how employees participate in their employer-sponsored plan. The conclusions suggest that plan sponsors take measures to address and take advantage of these changes by adapting their retirement plans to accommodate this new mode of employment to foster goodwill and employee satisfaction of remote workers.

Reallocation of Cost Savings Toward Retirement

While working remotely, employees may be enjoying savings on commuting expenses, the lower need for professional attire, and not paying for lunches out. According to surveys by FlexJobs, remote workers have saved as much as $6,000 annually by working from home, and recent statistics by the U.S. Career Institute indicate savings could actually average over $10,000 per year. These savings may be redirected toward retirement plan deferrals. In addition, since the amounts saved through remote work are in after-tax dollars, the actual pre-tax amounts that could be directed toward retirement savings could be significantly more.

Employers can actively encourage employees to use these savings to increase their retirement contributions. One approach is through targeted financial education programs that emphasize how small adjustments, such as reallocating savings from reduced commuting expenses, can significantly boost retirement savings over time. Employers can also influence behavior by illustrating how saving an additional $50-$100 a month can grow over the course of a career, using personalized examples in financial wellness workshops or interactive retirement calculators.

Additionally, employers can highlight these opportunities in benefit enrollment communications or through dedicated sessions with financial advisors who explain the impact of contributing extra savings to retirement accounts. Incentivizing higher deferral rates, perhaps through additional employer matching, can further motivate employees to take advantage of the savings they’ve gained through remote work arrangements.

With lower workspace expenses, plan sponsors who have adopted the remote work culture may find themselves with extra cash flow to offer a higher employer match or profit-sharing in their retirement plans, as well as offering other employee benefits to attract better talent and retain high-value employees. Some plans may be upgraded to include educational features, professional advisor services, and other benefits.

Retirement Plans May Need to Adapt for the Remote Worker

One challenge faced by plan sponsors will be to ensure equal access to plan resources. Traditionally, participation and access required face-to-face interactions with administrators or HR, which may not be as available to remote employees, even with the availability of Zoom or FaceTime technology. Accommodations to these workers, such as virtual benefits education workshops and robust online platforms, may need to be implemented to be certain of equal access and to meet plan requirements. A side effect of implementing virtual access to resources or presentations (and a deterrent to remote employee participation) may be “Zoom fatigue,” where workers avoid or decline engaging in an additional virtual meeting that is not required by their job.

Reaching remote employees with plan information, access availability, and promoting participation may be another significant challenge. Along with the lack of normal office banter or casual communication, remote workers may feel less informed and connected to their retirement plan. This lack of connection may lead to lower enrollment and participation, especially for employee stock ownership plans (ESOPs). A MetLife open enrollment survey indicated that nearly half of remote workers had difficulty understanding their employee benefits, versus 29% of in-house colleagues with a similar issue.

Remote Workers May Invest Differently

Those who work outside their company offices are likely to be more independent in their behavior and thinking patterns. As such, their approach to their retirement account allocations and benefits may differ from their in-house colleagues. Reports indicate that remote participants may be less inclined to use default investments, such as target-date funds, and may be more interested in personalized service from plan financial advisors or prefer a wider menu of investment options or managed accounts.

It May Be Management Who Is WFH or WFA.

The demographics of remote workers play a key role in retirement saving patterns as well. 2024 statistics indicate that while 54% of junior-level employees work remotely, a full 64% of senior-level employees work at least part-time outside the office. In addition, the greater number of remote employees are found in the professional service and technology fields. Both of these groups tend to be higher-compensated and higher-educated, implying that benefits plans need to accommodate their retirement planning objectives and provide for increased retirement savings needs.

In sum, those companies with a significant remote employee population may be wise to review these effects and carefully consider how upgrading and adjusting their plans may result in greater employee satisfaction and favorable participation by remote workers.

Utilizing Professional Assistance

At PlanPILOT, our company is uniquely positioned to help you meet these objectives. If you’re ready to upgrade to a new standard for your benefit planning, 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.