Research Shows Why Workers Don-t Participate in Employer's Supplemental Retirement Plan
September 20, 2010
According to researchers at Dartmouth College, there are three basic barriers to long-term saving, especially through participating in employer'sponsored retirement programs, such as a deferred compensation plan. Employers and plan providers may be uniquely qualified to help workers overcome all three.
Not Knowing Where to Start
Researchers found that employees can be overwhelmed by "the process." From daunting paperwork that comes with enrollment to the sheer quantity of questions on each form, workers often find they cannot decide and never enroll in the plan.
City employers have two main opportunities to help employees start saving. The first is when new hires are welcomed aboard. By providing them easy-to understand information about the benefits of their deferred compensation plan, as well as streamlined forms, when they receive other benefits information, employers can show how committed they are to helping employees achieve lifelong financial security.
That commitment may be reinforced by asking new hires to join the plan before they receive their first paycheck.
The second opportunity is during benefits enrollment periods and related employee events. Again, by highlighting plan participation as employees are considering other benefits, employers give them the chance to include long-term needs in their decision-making process.
Believing They Do Not Have Enough Income
Most public sector deferred compensation plans make entry easy by allowing low minimum contributions. However, employees may not realize that.
They may also need help understanding how, especially early on, just a few dollars a week invested through deferred compensation can lead to a tidy sum at the end of a 30-year career, and even more, if employees are disciplined enough to increase contributions every time they get a raise. Investing involves market risk including possible loss of principal.
Just as many municipalities are juggling fiscal restraints, tight budgets mean individual employees need to make trade-offs. By helping employees understand the advantages of deferred compensation, they may be more willing to brown-bag it or bring in a thermos of home-brewed coffee (or make other trade-offs) so they can budget contributions to their deferred comp account. City leaders can encourage this preferred behavior by modeling it themselves.
Not Having Enough Self-Control
According to the Dartmouth researchers, the evidence shows that employees are less likely to delay participation if they are given a plan - rather than left to their own devices. Employer programs that make enrollment and contribution increases automatic can help employees overcome their own inertia.
But the Dartmouth research suggests even plan sponsors who are not ready to adopt "automatic features" can help employees find their way to a potentially more financially secure retirement - by mapping the path for them, and having materials prepared with "default decisions" already filled in. The fewer the choices they need to make, the more likely they are to enroll and participate.
What Municipal Employers Can Do
For decades, The United States Conference of Mayors has provided a wealth of resources that member cities can use to encourage workers to save for retirement. Conference of Mayors members can access many of these resources online through the Conference of Mayors website, www.usmayors.org. These tools can help cities encourage employees to overcome the three barriers to saving identified by the Dartmouth researchers.
And, of course, there's the Conference of Mayors Deferred Compensation Program, developed and provided by Nationwide Retirement Solutions and the United States Conference of Mayors. For more than 30 years, the Conference of Mayors Deferred Compensation Program has offered city employers a way to address their employees- need for additional income in retirement through quality education, online resources and personal service.
For additional information about the Conference of Mayors Deferred Compensation Program or help putting the educational resources to work in your municipality, contact Jeannie Fanning at jfanning@usmayors.org or 240-393-9672, Jeff Bean at jbean@usmayors.org or 202-446-8140, or contact Louie Watson at WatsonL2@Nationwide.com or by phone at 614-854-8895.
Use National Saving for Retirement Week, October 17-23 to promote deferred compensation at your worksites.
To learn how, contact a Nationwide¨ representative, call 877-677-3678, or go to nrsforu.com/retirementweek.
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