3 ways retirement plan design can address workforce challenges

November 14, 2019 3:39 PM

Today’s workforce is more diverse than ever before — spanning a wide array of generations, socioeconomic brackets, educational backgrounds, geographies and job types. Even so, there are ways employers can structure a retirement plan to address the needs of a growing and changing workforce.

A well-structured retirement plan enables workers to build sufficient savings, manage risk, choose appropriate investments, generate lifetime income and save for expenses in retirement. It can also help employees improve their retirement readiness and serve as a key differentiator in the battle to attract and retain talent. No two organizations are the same, but plan design can be customized and strengthened to align with the unique needs of employees.

Here several ways benefits professionals can design retirement plans to address three key financial needs.

Helping employees to balance debt and save money

Student loans are held by workers of all ages. In a survey conducted by MIT Age Lab, the majority of participants (84%) say student loans negatively impact the amount they save for retirement. Education loans and retirement savings should not be mutually exclusive — working on a plan to address employee education debt can help employees balance loans and saving for their future.

The chart shows two examples of a more loan-friendly plan design where retirement savings are earned and student loans are repaid. The redesigned approach helps ensure that employee savings continue even if a worker is not able to contribute, and auto features encourage savings.

Safeguarding workers’ retirement savings

Getting employees to save for retirement is critical, but it’s equally important to safeguard those assets. Retirement plan loans, hardship withdrawals and cash outs can significantly reduce employee savings and retirement readiness.

Employers can include options in their retirement plan design to reduce leakage such as limiting hardship withdrawals to employee contributions, limiting plan loans and allowing loan payments to continue after separation.

Ensuring income throughout retirement

Employees are concerned about their retirement readiness, and so are their employers. The 2018 TIAA Retirement Plan Sponsor survey found that 77% of employers are concerned their employees will outlive their retirement savings.

Consider your investment menu and default investments. Employees need help generating monthly retirement income they can’t outlive. They also need help protecting their retirement savings from market and inflationary risks. A diversified income approach that includes both fixed and variable annuities can help them accomplish both. Including a guaranteed income component in the plan’s default investment would further align participants’ retirement income needs with your plan.

Consider tax strategies: Tax-free income distributions could help employees keep more of their money and avoid being bumped into a higher tax bracket in retirement. Consider offering a Roth account as a 403(b) plan option to help employees diversify retirement income sources.

Health savings accounts and retiree health savings programs offer similar tax advantages when taking qualified healthcare distributions in retirement. With rising retiree healthcare costs, offering a way to save would also help diversify employee income sources in retirement and manage a significant retirement expense.