wellness

2024 Trends in Retirement Plans

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As we step into 2024, the world of retirement planning continues to evolve. It’s a great time to look ahead and understand what will guide us in improving retirement outcomes for our clients and their participants. This year, we expect to see a mix of familiar trends from the Secure Act 2.0 and new focuses on personalization and financial wellness. Also, we’re keeping an eye on how the economy will influence our strategies, especially with the upcoming election and the Federal Reserve’s actions against inflation. Here are the major themes we are working on this year:

1. Secure Act Updates

Changes continue to be implemented with the passage of the Secure Act 2.0. Some changes were delayed such as the Roth Catch-up requirement which will take place after 2025, however, there are some mandatory and optional that we are focusing on.

Long Time Part Time Employees.

Employers will now be required to allow long-time part time employees to defer into their 401k if they have worked at least 500 hours of service in each of three consecutive 12 month periods and have attained age 21. That requirement is reduced to two consecutive 12 month periods for plan years after 2025. Additionally, for plan years after December 31, 2024, 403b’s will be required to adopt these new provisions.

Matching contributions on student loan payments

Starting this year, Retirement Plans may treat certain student loan payments as plan contributions for the purpose of match contributions. This provision may mean that employees who make qualified payments on student loans can receive a match even if they were not able to contribute to their plan.

Emergency savings accounts linked to retirement plans

Starting in 2024 the Secure Act 2.0 allows for plan participants to make pre-tax payments to a linked emergency savings account up to $2500 and withdraw up to $1000 without penalty. Providing access to participants to emergency savings when they need it and still save for retirement could help alleviate the anxiety of saving in a retirement plan for lower income workers.

The Secure Act has many other provisions being implemented in 2024 as well. It is important that you discuss with your Administrator to ensure compliance.

2. Personalization

A key area of improvement in the defined contribution space is the increase in levels of personalization at the participant level. By using key demographic information already known by the plan and information received directly from plan participants, 401k and 403b providers can create personalized saving and investment plans for employees at scale. Our approach to personalization is to utilize a tiered approach depending on the level of engagement from plan participants.

Plan-level personalized reporting and engagement

Often times participants are disengaged or recordkeepers don’t have the necessary technological solutions for detailed personalized planning. When that happens, we are finding innovative ways to use readily available plan demographic data to create personalized reports. This strategy enables us to identify participants who need help, so we can proactively reach out to them.

Increased use of Managed Accounts for engaged participants

When participants are engaged and the recordkeeper has appropriate and cost-effective technology solutions, managed accounts can provide an advanced level of personalization for retirement savers. Managed accounts allow professional third-party management of a participants retirement account based on demographic data and input from engaged participants.

When utilizing managed accounts in a retirement plan it is essential to monitor the program to ensure that participants who are paying extra for the service receive additional value through personalization.

3. Focus on Financial Wellness

Technology improvements and engagement

In 2024, there’s a heightened focus on financial wellness within 401(k) and 403(b) plans. Technological solutions are playing a key role, offering sophisticated tools that provide a comprehensive view of an individual’s financial health, including retirement readiness. More providers are entering the market increasing engagement and reducing costs. These new tools are increasing engagement and helping participants create healthier relationships with their money.

Retirement Income hits the mainstream

There is a growing momentum for in-plan retirement income strategies. Plans are increasingly incorporating features that help participants transition their savings into a stable income stream for retirement, addressing concerns about outliving their resources. This shift underscores the evolving role of 401(k) plans from mere savings vehicles to comprehensive retirement planning tools.

As the retirement income market evolves, platforms and investment managers are creating innovative retirement income products at lower costs to benefit more participants.

4. Economic Disruption

The 401(k) landscape in 2024 is also navigating through economic disruptions. The influence of the Federal Presidential election is sure to be contentious and could potentially mean social and economic disruptions through the 2024 election season. 

Furthermore, the Federal Reserve’s efforts to achieve a ‘soft landing’ amidst economic uncertainty are crucial. The Fed’s monetary policies, aimed at stabilizing inflation while avoiding a recession, play a significant role in shaping the investment landscape. Participants and plan sponsors must stay vigilant, adapting their strategies to these evolving economic conditions to safeguard retirement assets.

Conclusion

The 401(k) and 403(b) landscape in 2024 presents both challenges and opportunities. Staying informed and adaptable is key to navigating this dynamic environment. Whether you’re a plan sponsor or a participant, understanding these trends is vital for making strategic decisions that secure a comfortable retirement.

Could Financial Coaching Work for Your Workforce?

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It’s 9 a.m. and Janine (your employee) turns on her workstation computer to start her workday, yet the first phone call she takes is from a debt collector, and the first site she logs onto is her bank to see if she has overdrawn her checking account.

While this example is only an illustration, “Janine” has many real-world counterparts who devote work hours to money-related stressors.

Workers of all levels of education and income have financial problems.

Financial stress impacts workers’ lives personally and professionally. About 80 percent of employees who report significant financial stress say that they’re distracted by stress at work.[1]

Financially stressed employees can stress your company’s bottom line. According to a John Hancock Financial Stress Survey, employees stressed over finances cost their employers about $2k per employee.

If you are the CEO, HR manager, or a decision-maker in your company, a quick way to solve this would be to increase employees’ earnings and make their paychecks go further.

Unfortunately, with the current economic environment, very few businesses can afford to increase payroll.

A better option may be to offer financial coaching as a voluntary benefit, assisting employees to get more out of their paychecks and, effectively, giving them raises without increasing payroll by a cent.

Financial coaching could be the missing piece to your financial wellness programs. Access to financial wellness and education programs is steadily increasing, with over two-thirds of small to mega plans offering some form of program to help their employees manage their day-to-day finances[2]. However, research shows us that there is still more work to do.

What Is Financial Coaching?

Financial coaching focuses on a combination of intuitive technology and advisor led coaching with employees towards incrementally improving the financial position of your employees.  Offered as a voluntary benefit, financial coaching sends employees a valuable message. It lets them know their employer cares about them and is prepared to extend a helping hand to those in need.

‍Employees often need support and encouragement to adhere to positive financial behaviors. By covering areas like debt reduction, credit building and budget counseling, employees may be able to:

  • Save more and spend less
  • Build an emergency fund
  • Pay off consumer debts and student loans
  • Prepare for vacations and holidays
  • Contribute to an investment plan

For financial coaching to be successful, it needs to do more than just provide education. Coaching should result in your employees taking appropriate actions that lead to financial success.

Why Offer Financial Coaching?

Financial coaching for your employees isn’t just the right thing to do; it makes good business sense.

You may benefit from a more focused, engaged, and productive workforce when employees aren’t distracted by financial worries.

According to the 2019  Employer Guide to Financial Wellness by SalaryFinance.com, financially stable employees can complete daily tasks 6 times faster than financially stressed employees.

Improving your employees’ financial wellness can lead to lower turnover rates and reduced absenteeism while increasing employee satisfaction and improving your brand.

Covid-19

Americans are dealing with high levels of financial stress, and Covid is partly to blame.

Covid has turned the lives of many people upside down. Employers have started recognizing the value of adding financial coaching to their employee benefits packages.

They not only do this to attract and retain the best talent but also to support their employees in attaining their personal goals, in effect, turning them into loyal, long-term staff members.

Financial Lives are More Complex

35 percent of Americans report losing sleep to financial stress. One-quarter of the 35 percent of Americans losing sleep experience symptoms such as broken sleep, insomnia and fatigue on waking. [3]

There are a lot of health factors that can affect employee workforce productivity, which is why implementing financial coaching into your HR strategy can help.

Financial coaching can help employees find balance and control over their finances, now and in the future. But financial education alone is not going to change financial behaviors.

You need a solution that goes beyond static education. You must change your behavior in order to improve your financial health.

 

Americans have a financial literacy problem

It’s no secret that Americans struggle with their personal finances. But there’s a solution to every problem, and in this case, it may be financial coaching.

According to a study by Enrich, employees who participate in their financial wellness programs show positive financial behaviour changes.

  • 10 percent contributed enough to the 401(k) to get the employer match
  • 15 percent contributed to their retirement plan
  • 27 percent created an emergency fund with 3-6 months of saving
  • 28 percent pay off their credit card balance each month
  • 32 percent feel they’re on track with their financial goals

As you see, financial coaching will empower your employees with insight and accountability towards permanently improving their financial health and mindset.

Meeting Your Employees Where They Are

To keep up with today’s interconnected world and better serve their clients, more and more financial coaches are leveraging technology.

Technology has significantly impacted financial coaching. It’s an easy way for financial coaches to meet the evolving needs of their clients and develop deeper relationships with them. It’s now possible to move employees along at their pace and then be available for consultation as needed.

An integrated platform creates a clearer path for goals-based planning and allows for more collaboration with plan participants.

Maximizing ROI

  • Financial coaching is an inexpensive benefit

As an employer, you are already investing in your employees.  Incremental costs associated with a robust technology platform coupled with one-on-one coaching consultations could cost less than $100 per employee annually[4], which makes coaching one of the least expensive benefits you could offer your employees.

  • Trackable and reportable at the employer level

To help you recognize what troubles your employees are facing and the progress they are making, a financial coach will provide aggregated reports.

These insights serve as means that strives to keep your employees focused on work by minimizing their stress and the basis for future conversations about maximizing involvement in your company’s benefits.

  • Getting employees to retire on time reduces health care costs over time

Many surveys show that finances are the leading cause of stress for working Americans.

While increased heart rates and sweaty palms might be symptoms of situational stress, the effects of chronic stress range from increased fatigue to heightened irritability and inability to concentrate.

A financial coach can help your workforce work towards getting their finances in order and retire early. The sooner your employees retire, the more time they’ll have to check items off their retirement bucket list.  

 

Choosing the Right Provider

There are a lot of providers in the marketplace and more are entering every day. This means that you have a lot of choices in who you partner with for your coaching needs. 

Some providers of financial coaching are offering technology programs and access free of charge.  However, we have found that those platforms are mostly offered by financial services companies that want to sell potentially high cost loans and investment products that may or may not be in your employee’s best interests. 

A true partner should be transparent with how they are paid and independent in their delivery.   An independent advisor may have higher upfront costs but may be better for your employees in the long run. 

Schedule a Call

At Retirement Impact, we’re in the business of changing financial lives.

Our approach to financial coaching focuses on engaging employees with a focus on guiding them towards action.

The goal is to help employees attain their objectives for every stage of their financial lives, whether it’s eliminating debt, saving for a car, buying a home or creating a safer retirement. Schedule a call today to see if coaching can be a complement to your financial wellness program.

[1] Source: Financial Health Network: https://finhealthnetwork.org/research/workplace-financial-health//  Accessed August 2, 2021

[2] Source: Morningstar.com https://www.morningstar.com/news/business-wire/20210623005172/cogent-syndicated-plan-sponsors-use-of-financial-wellness-offerings-reaches-historical-high . accessed July 6, 2021

[3] Source: American Psychological Association, “Stress in America, 2020”, https://www.apa.org/news/press/releases/stress/2020/report-october, Accessed August 2, 2021

[4] Source: https://www.financialeducatorscouncil.org/financial-wellness-providers/, National Financial Educators Council, accessed on 7/21/2021.

Motivating Savings with Financial Wellness and Plan Design

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Resolution season is upon us. January through March are the peak motivation months.  That special time of the year when people are eager to make positive strides toward physical, financial, professional, or personal goals.  On average, 42% of Americans make money-related resolutions.  However, in less than 6 months, half of the once dedicated forget about their goals.[1] But, as we all know, it takes longer than 6 months to reach a meaningful savings goal.

So, how can you, as a plan sponsor, use the resolution momentum to inspire your employees to save for retirement? This article we will discuss holistic ways to promote financial wellness among your employees as well as plan design tips aimed at increasing participation and savings rates.

Employee Savings Goals

We’ve all heard the saying, “if you don’t know where you’re going, any road will get you there.” However, without a financial goal, many are left unprepared and money has a way of slipping away when there is no clear savings path.

As a retirement plan advisor, my job would be so much easier if every one of your employees were focused on saving for retirement; but the reality is, if they are financially stressed, retirement is the last thing on their minds. Depending on the age and financial situation of your workforce, top concerns may range from meeting monthly expenses, to paying off debt or saving for college, to caring for aging parents. It’s important to understand that saving is a journey and even though each of your employees may be in a different spot, however, the act of saving needs to be constant.

TIP: Encourage your employees to maintain an active list of financial goals. This will help them set a savings path and may help you to determine a more focused financial wellness program or specific education topics.

Savings Buckets

The term savings bucket is not new to you as a plan sponsor, as you may have regular conversations with your recordkeeper about them. However, it may be a brand-new concept for your employees. The three-bucket principal is a way of simplifying the art of saving. First you fill bucket #1 and once it is full, savings begin pouring into bucket #2, then it is on to the final bucket. Each bucket holds savings for a specific goal: Bucket #1 is reserved for Emergency Funds; Bucket #2: The Middle Bucket; Bucket #3: Retirement Bucket.

Plan Goals

Beyond the holistic efforts of financial wellness that address the financial hurdles your employees face, there are steps you can take from a plan level that can motivate positive savings habits. Automatic features such as auto-enrollment and auto-escalation are two plan design features that can help you pursue goals of increasing participation and deferral rates.

Auto-enrollment is an excellent plan design feature to help get new hires saving from the get-go. In fact, Vanguard research shows that plans with auto-enrollment boast participation rates reaching 90% whereas plans with voluntary enrollment fall short at 63% participation.[2] You may also consider adding features that enroll #_ftn1#_ftnref2(or backsweep) workers who may not have been previously enrolled in your 401(k) plan.

Participating in the plan is great, but you want your employees to be saving at the highest possible rate. One way to help is by implementing an auto-escalation feature. Consider enrolling (or re-enrolling) employees into the plan at a modest 5% savings rate, then increase the deferral by a set percentage each year until a more meaningful rate is reached.  Optional formulas:

Deferral GOAL Starting Deferral Annual Increase Years to Accomplish
10% 5% 1% 5 years
10% 5% 2% 2.5 years
15% 5% 2% 5 years

Always Moving Forward

Creating a culture for your employees to save begins with a dialog; we are happy to help with that conversation. At Retirement Impact, we feel that employee education and empowerment starts with the plan sponsor. Thus, we aim to provide resources and tools that help you help your employees move toward their savings goals.

[1] Statistic Brain. “New Year’s Resolution Statistics.” Jan. 2017.

[2] Vanguard. “How America Saves.” June 2017.

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation.

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Info@401kImpact.com

Investment advisory services offered through Global Retirement Partners, LLC, a registered investment advisor. Global Retirement Partners, LLC and Retirement Impact, LLC are separate and unaffiliated

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