YOUR BUSINESS AUTHORITY
Springfield, MO
YOUR BUSINESS AUTHORITY
Springfield, MO
A recent survey published by BlackRock Inc. (NYSE: BLK) found that 90% of registered voters polled think there’s currently a retirement savings crisis in the United States.
The survey of 1,000 national registered voters, conducted in August for BlackRock by independent research firm Public Opinion Strategies, further indicates that 84% of registered voters plan to retire, but that of those who do not have a retirement plan, 78% said it’s because they’re unable to afford it.
Enter the SECURE 2.0 Act of 2022, which builds upon the Setting Every Community Up for Retirement Enhancement Act of 2019 in an effort to increase retirement savings, largely through 401(k) plans, following its approval by Congress and President Joe Biden. One of the provisions of the SECURE 2.0 Act will require some employers to automatically enroll participants in newly created 401(k) plans starting in 2025, according to a summary of the law published by full-service 401(k) provider Employee Fiduciary.
Brad Culver, vice president and retirement plan adviser for Arvest Bank, said the automatic enrollment provision can be a helpful tool for employers and employees.
“They’re attempting to improve people’s savings,” said Culver, whose work focuses on Kansas and Missouri, including Springfield and Joplin. “Having automatic enrollment significantly increases participation in plans.”
Culver said while automatic enrollment plans include opt-out requirements, they tend to promote momentum in savings.
“You’ll find virtually everybody stays in it,” he said.
According to payroll and human resources solutions company ADP, all new 401(k) and 403(b) plans created after the enactment of SECURE 2.0 will be required to automatically enroll new employees with an initial contribution starting between 3% and 10%. The amount would increase by a percentage point each year until it reaches 10%-15%.
“New companies in business for less than three years and employers with 10 or fewer workers are excluded,” ADP notes. “There are also some exceptions for small businesses, as well as church and governmental plans.”
Roughly two-thirds of 401(k) plans utilized automatic enrollment as of 2022, according to data from the Plan Sponsor Council of America trade group. A 2023 survey from the Plan Sponsor Council finds automatic enrollment can increase participation rates by 15 percentage points or more depending on plan size.
And the impact is even greater with younger workers. Vanguard’s How America Saves 2023 report found participation rates among younger workers and workers earning less than $50,000 to be 30 to 50 percentage points higher in plans with automatic enrollment.
However, an article published this summer by the Society for Human Resource Management reports people who are automatically enrolled in retirement plans are more likely to abandon accounts, even after retirement, and are more likely to cash out funds early. SHRM says education and engagement for enrollees is key.
Education solution
Nearly a third of respondents in the BlackRock study had no savings. Sixty-six percent of respondents have less than $150,000 saved, which is far less than the $2.2 million those same respondents estimate they would need for retirement.
Top retirement concerns identified by respondents include 78% who are concerned about not having enough money to take care of long-term care expenses, 75% who are concerned they won’t be able to maintain their standard of living through retirement and 73% who are concerned about having inadequate savings or investments to fund needs in retirement.
Rebecca Greene is director of ProsperU, a Central Bank in Springfield financial education center that launched last year. ProsperU’s goal is to provide in-person and online financial education classes that are free to the public, including for those who are not Central Bank customers.
Greene, who has conducted 116 classes to date this year through ProsperU for businesses, nonprofits and their workers, said insufficient 401(k) savings can creep up on employees who did not opt in early on in their careers.
“My goal is to get people to think past what’s going on in their life today, to think about their future,” Greene said. “More and more employers are finding that their employees are struggling financially.”
Offering employees access to a financial literacy class, such as one through ProsperU, is vital, she said, especially for entry-level employees.
“A lot of them have more financial problems than they’re willing to admit to their employers,” Greene said. “Employers need to be creative.”
Employers that engage with ProsperU often offer incentives for employees, such as career advancement or free meals, who attend and complete financial literacy courses.
Greene said employees should consider 401(k)s as part of their total compensation package.
“That all goes into what you’re actually making,” she said, noting she often hears from employees that they can’t afford to contribute to their retirement plans. “My pushback always is you can’t afford not to.”
Starting small
Both Culver and Greene say that employees who haven’t made contributions toward a 401(k) plan should start doing so.
“The good place to start is somewhere,” Culver said. “The most important thing is to get started and the next most important thing is to periodically increase your referrals.”
Greene said for employees who are hesitant about making retirement savings contributions, adding 1% per quarter will ease those concerns.
“It’s such a small amount. You’re not going to miss it,” she said. “I increase mine every year by 1%.”
Automatic enrollment also would ease the burden, Greene said.
“If you’re enrolled automatically ... it’s out of sought, out of mind, because you don’t miss the money,” she said. “You’re not going to miss it if you don’t have it in the first place.”
Fortified Elder Law LLC moved; Weston Kissee, a 17-year employee with St. Louis-based financial services firm Edward Jones, relocated; and Monroe Coffee Co. changed ownership.
