New ways to help employees save for retirement

11 Aug

Employees need to prepare for their retirement plans.

Many companies have switched to defined contribution pension programs by now for employee 401(k)s. There are still things that can be done on the payroll management side to make things better for employees without costing too much effort on behalf of the company. For example, many businesses have started programs that automatically increase employee contributions to the 401(k) every year. This can cost money because it requires that HR directors work with payroll management software, but the end result can ultimately boost worker morale, according to Human Resources Executive Online.

A survey by American United Life Insurance Company, a subsidiary of OneAmerica, indicated that 55 percent of the 7,545 retirement plan participants surveyed indicated they would prefer if companies automatically increased their pension contributions.

"With non-stop family, health and life events and changing financial obligations over the course of one's life, saving for retirement can easily fall to the bottom of the priority list," said Marsha Whitehead, vice president of marketing for OneAmerica. "Automatic features can help plan participants easily increase their retirement contributions and not get distracted by other financial matters."

Why it is beneficial for employees to increase their yearly pension contributions at a certain rate
Because of inflation and additional responsibilities like kids and caring for elderly parents, it often helps to put a little extra away as one becomes older and grows with a company. People don't often know exactly how much they will need at the start of their careers, when they are sometimes just out of school and may not know enough about pensions and the time value of money.

According to Whitehead, the companies that do offer gradually increasing contributions to 401(k)s tend to do it either as an opt-in program or an opt-out program. Many of the companies that use the opt-out program find more of their employees stay with the original plan instead of opting out. For example, when people opted in at T. Rowe Price, a finance company with such a program, the number of people who chose the program turned out to be 8.3 percent of employees, according to an internal survey. In comparison, 64.7 percent stayed inside the opt-out version of the pension plan.

Other ways to save for retirement
According to the Wall Street Journal, there are also versions of 401(k) programs that offer the possibility higher returns than ordinary pension plans: These are called managed accounts. Under these programs, a professional investor is managing someone's retirement savings to try to maximize value in a more personalized way. The Journal cited information from the Government Accountability Office that found these programs often charge a fee that can outweigh the benefits of a slightly higher return and lower risk than a traditional 401(k).

Whatever a company chooses to offer its employees for pensions and retirement savings, it should be as transparent as possible. Some companies might consider sending out emails or giving seminars about financial advice if people seem clueless about what a pension plan is or how it works.

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