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How Employers Can Help Solve the Retirement Savings Problem

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According to the Department of Labor one in three workers in America have no retirement plan at work.

Most will be able to collect Social Security but the Social Security Trust Fund is on track to pay out only 75% of current benefits as of 2034 if changes aren’t made to funding or benefits. Employers can help fill the gap by beefing up their own defined contribution retirement plans.

“Employers have many levers to pull in helping to ensure each worker has the opportunity to reach a secure retirement,” according to the third annual Natixis Survey of U.S. Defined Contribution Plan Participants. Nine hundred fifty-one individuals were surveyed about ways employers can increase employee participation in employer-based retirement plans.

(Related: 30 Best Big 401(k) Plans: BrightScope)

Here are some of the survey’s key findings:

Automatic and Early Enrollment. Eighty-one percent of respondents said they would save more if they could start on the first day of employment. But that option is not available to employees who are required to work a minimum amount of time, sometimes as much as a year, before enrolling in their company’s 401(k) plan. The survey found that 43% of survey respondents enrolled in a plan began via automatic enrollment and 23% of respondents said they would save more if there were incentives to do so such as an automatic annual escalation of contributions.

Matching Contributions. Three-quartersof survey respondents favored a mandate requiring employer matching contributions, and 60% said there should be a mandate requiring individuals to sign up for a company retirement plan. In the U.K. employee an auto-enrollment requirement increasedparticipation rates in company retirement plans. Almost half of those respondents who didn’t participate in an employer-based retirement plan cited the lack of a matching participation.

Education. “Workers need education and advice if they are going to navigate the complex choices they face in funding retirement,” according to the survey. Such education “needs to go beyond basic lessons in diversification, allocation and compounding if workers are to become more engaged in retirement.” In addition, offering investments that comply with workers’ values such as ESG strategies can be helpful especially with millennials, according to the survey.

Professional Advice. The survey found that employees who work with professional advisors saved substantially more for retirement: $239,000 versus $121,000 for those working with an automated advisor and $196,000 for those who were self-directed investors. What’s surprising about these results is the effectiveness of the self-directed investor compared to the investor using a robo-advisor but the numbers may be too small to generalize from since only 30% of respondents reported working with a financial advisor, while 57% were self-directed and only 7% worked with a robo-advisor.

Tailored Approaches. The survey found several reasons for employees not participating in their work-based retirement plans and some can be linked to their particular generation. For example, many millennial respondents noted that student loans were an obstacle to saving for retirement while many of their parents – baby boomers and Gen Xers – cited saving for college – as an impediment.The report suggested that if employers offered student loan forgiveness and higher education savings plans some of their employees could save more for retirement.

One crucial finding of the survey, which has been found in other surveys, is the financial discipline of millennials. They have started participating in their company’sretirement plan at age 23, four to eight years earlier than Gen X and boomers and more than half expect to increase their contributions annually or are already contributing maximum amount to their retirement plans.

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