Many people that are part of a younger working generation have not started to build a nest egg for their future. In fact, just 39 percent of adults now saving for retirement began in their 20s, according to a report published by Morning Consult. The report also revealed that half of adults between the ages of 18 and 34 are not saving for retirement at all.
The reason for this lack of retirement funds is not necessarily that the younger working generation does not want to save, but rather that they do not have access to or are not eligible for an employer-sponsored retirement plan. Learn why many younger workers do not have sufficient retirement savings and why a 401(k) can be an effective recruitment tool.
Lack Of Access To 401(k) Retirement Plans A For Younger Working Generation
It is a common misconception that millennials do not generally participate in retirement plans due to a lack of interest or affordability. The younger working generation indeed faces more financial obstacles compared to decades past, such as climbing student loan debt and a recovering economy. However, one of the most common reasons that millennials do not save for retirement is that they are not eligible to participate.
The reason for ineligibility relates to the number of hours that millennials tend to work. Many younger employees only work part-time, often making them ineligible for retirement benefits.
Businesses may also have other stipulations in place for eligibility, such as maintaining a position at the company for a certain amount of time—for instance,one year. When employees do not meet these eligibility requirements, they may be denied coverage.
Attracting Millennials With A 401(k) Retirement Plan
A 401(k) plan is a popular type of retirement plan commonly offered by employers. What makes this retirement savings option so appealing is that it offers unique tax advantages to the account holder.
Employees who choose to participate in their company’s 401(k) program agree to have a percentage of their paycheck transferred directly into an investment account. Employers can decide to match all or part of each employee’s contribution. Employees have the chance to select from a variety of investment options, such as mutual funds.
In recent decades, many employers have moved away from the risk and responsibility of traditional pensions. With a 401(k) plan, this risk is shifted to the employee. Employers offer employees a selection of investments to choose from, such as target-date funds, that can help reduce the risk of investment losses as employees approach retirement age.
Investments may also include guaranteed investment contracts (GICs) that are issued by insurance companies. It is also important to remember that 401(k) plans have contribution limits that often change from year to year.
401(k) Retirement Programs And Current Trends
There are certain elements of 401(k) retirement plans that are attractive to millennials, including the rollout of innovative digital trends. One such trend is auto-enrollment where eligible employees are automatically enrolled into the 401(k) program offered by their employers.
According to a Vanguard analysis that looked at 1,900 401(k) plans with approximately 3.9 million participants, participation rates in 401(k) plans were 30 percent higher with automatic enrollment compared to plans without it.
Many modern 401(k) retirement plans also offer auto-increase features as well. With auto-increase, employee contributions are automatically increased whenever the employee receives a pay raise.
Research by Bank of America showed an increase of 153 percent for 401(k) plans that offered both auto-enrollment and auto-increase features. Millennials tend to be highly tech savvy and enjoy the ease and convenience of having these important elements of their retirement savings plan handled without manual input.
Why Offer A 401(k) Retirement Plan To A Younger Workforce?
Employers are discovering the value of offering 401(k) retirement plans to their younger workforce. Recruiting millennials can often be tricky and many companies struggle with retaining young workers. It is no longer wise to only highlight salary compensation when recruiting new employees.
Millennials are looking for more in the form of monetary benefits like health insurance and retirement match programs. They also seek nonmonetary benefits, such as job flexibility and vacation policies.
Employees can enjoy a wide range of advantages when they participate in an employer-sponsored 401(k) plan. They can enjoy the convenience of having money automatically deducted from paychecks, tax-deferred investment gains, and earnings. Employees are immediately vested with their own tax-deferred contributions.
Although there is a penalty for employees that withdraw funds from their account early, this penalty is eliminated if employees retire at any time in the calendar year that they turn 59-1/2 or older.
Request A Consultation With A Benefits Consultant
In a competitive employment market, businesses must find new ways to stand out. Offering a 401(k) retirement plan, in combination with a competitive compensation and benefits package, can be an effective way to attract a younger workforce. Contact New City Insurance today to request a consultation with an employee benefits consultant.