Americans continue to be concerned about retirement readiness, yet many employees fail to increase retirement plan contributions, highlighting an urgent need for advisers and employers to better engage their employees in their financial future.

More than one-third of Americans who contribute to an employer-sponsored retirement plan have never increased the percentage of their salary they pay into their company’s plan, according to a recent survey from the financial services firm TIAA-CREF. An additional 26% of employees have not increased their contribution in more than a year. The findings are especially unsettling considering that 44% of American workers save 10% or less of their annual income each year.

Employers and benefit advisers can help workers improve their retirement readiness by communicating with employees regularly about their benefits and installing plan features like automatic enrollment and automatic escalation.

"Plan sponsors should have ongoing interactions with employees over the course of their careers around three critical actions: enroll in the plan, increase contributions every year, and check asset allocations every year to rebalance if necessary," says Teresa Hassara, executive vice president of TIAA-CREF's Institutional Business. "Auto-enrollment and auto-escalation options offer great benefit to overcoming employee inertia around retirement planning, but they are not universal, and they are not a substitute for employee engagement."

See related story: How diverse savings goals eat away at retirement savings

According to the recent survey, more than half (53%) of employees with company retirement plans were not automatically enrolled in those plans. Those not automatically enrolled delayed entry in the plans and lost precious time they could have been saving for retirement. For example, 37% of respondents in this group waited six months or longer to enroll, and one in four employees (24%) waited a year or more.

Further, 57% of workers did not increase their plan contribution after their last raise. The most common reason given was an immediate need to pay expenses. One-quarter of surveyed employees explained they were already contributing the maximum amount to their retirement plan. Men (33%) were nearly twice as likely as women (17%) to be contributing the maximum amount allowed. 

Interestingly, millennials (age 18-34) were more likely than any other age demographic to increase savings after a raise (52%) and 23% of those millennials who did not increase savings after a raise were already contributing the maximum amount allowed.

Adjusting investments

In addition to not increasing their contribution rates, many employees are not taking the necessary steps to ensure they have the right investments at each stage of their lives. According to the survey, 25% of employees have never made changes to how their money is invested, and an additional 28% have not made changes to how their money is invested in more than one year.

Once again, millennials were significantly more likely to have changed how their money was invested in the past year compared with those 35 years or older (59% vs. 42%).

One-third (34%) of those age 55 or older have never made a change to the way their money is invested, which means they are less likely to have transitioned their investments from saving for retirement to creating income to last for their lifetime. 

"Plan sponsors should be proactively looking for opportunities to engage directly with employees about their retirement savings, especially during pivotal times such as benefits enrollment season and after an employee receives a raise," says Hassara. "Reaching employees at the right time with the right messaging can have a profound effect on retirement readiness."

Engaging employees with retirement benefits

According to financial advisers at the firm, unless workers are saving 10% to 15% of their salaries each year, including employer contributions, employees are not likely to be on track to replace the recommended 70% to 90% of their income in retirement.

In order to communicate the importance of retirement readiness to employees and help them prepare for a financially sustainable future, employers and their benefit advisers should encourage workers to pursue three options: enroll in the plan, increase contributions every year, and check asset allocations every year to rebalance if necessary.

TIAA-CREF recommends integrating the following “4Cs” in any communication campaigns:

  • Continuous dialogue: Communication is not a one-time discussion. Employees require a steady flow of information in the right cadence throughout their careers.
  • Content that is segmented and needs-based: Employees in different life stages have different financial needs. Targeted, relevant content that addresses their unique circumstances is more likely to get them engaged in their own financial well-being.
  • Channel of choice: An effective program combines a variety of channels, including printed materials, online webinars, smartphone apps, in-person interactions, and innovative gaming technologies.
  • Consultative approach: A combination of detailed plan analysis and consultations between a plan sponsor and its provider are needed to ensure that resources are tailored to a plan’s unique needs.

The survey findings come from TIAA-CREF’s Investing in You Survey, which was conducted between May 19, 2014 and May 28, 2014 among a sample of 1,000 adults currently contributing to an employer-sponsored retirement plan.

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