Retirement Perspectives: Everybody Wins

Select Plan Design Features Can Help Improve Outcomes for Lower-Income Workers

Depending on the nature of your business and the varied experience, education and expertise required of your workforce, you may have a significant population of lower-income workers. In a highly competitive hiring environment, the following plan design ideas can help attract and retain workers. By adding a little flexibility to better accommodate your lower-income workers, everybody wins.

Automatic Features
Research from the Program on Retirement Policy at the Urban Institute in Washington, D.C., shows that the best way to get lower-income workers to participate in a plan is to automatically put them in the plan. At the same time, plan sponsors must also consider the effect on lower income workers if it is paired with automatic escalation. Setting the automatic deferral and auto-escalation rates too high can be particularly harmful to lower-income workers, who make their deferrals from lower earnings. One tactic employers can use to help encourage lower-income workers save is to educate the staff on the auto-deferral escalation feature on the website. Your employees can set their account to automatically increase during a specific time of year up to a max. 

Adjusting the Match to Encourage Higher Deferral Rates
Employers often adjust the plan’s match rate to encourage higher deferral rates. The Program on Retirement Policy’s research shows that participants often defer up to the maximum rate required to receive the full match. The higher the level at which the match ends, the more people feel encouraged to contribute. However, plan sponsors wanting to increase lower-income workers’ retirement savings by tweaking the match must remain sensitive to setting the threshold so high that they price these workers out. WoodTrust can assist you with matching formula projections to help determine which formula may best suit your demographic of workforce.

Combining a Financial Wellness Program with an Emergency Savings Program
The Defined Contribution Institutional Investment Association’s Retirement Research Center in Boxford, Massachusetts, recommends offering a financial wellness program combined with an emergency savings program. Offering both programs emphasizes the importance of having sufficient savings to cover emergencies and is the most powerful tool available for lower-income participants. Findings from the Life Insurance Marketing and Research Association show that almost 30% of lower income workers have no emergency savings fund, which can lead them to not save, or to withdraw money from their retirement accounts. Funding an emergency savings account can give lower-income employees a sense of feeling in control and more security about their day-to-day experience. That’s a great foundation to build before beginning a long-term retirement savings program. Your 401k participant website has a variety of financial wellness tools and resources available for your participant’s use. Contact your WoodTrust Relationship Manager for more information on the Financial Wellness tools available.