A lot of younger employees don’t save for retirement — so their employers are doing it for them.
Every year that an employee delays retirement can cost large companies as much as $3 million, according to Prudential research. Employers already experience those financial consequences with baby boomers, which is why many are stepping up their retirement savings efforts to prevent the losses with younger workers.
One way they’re doing so? By automatically enrolling new employees in 401(k) plans. That’s according to a group of HR professionals who spoke Wednesday during a roundtable discussion at Advizr, a New York financial wellness company.
“Millennials would rather pay student loans than save for retirement,” said Candice Harte, senior benefits specialist at Spotify. “That’s why it’s difficult to get them to enroll in retirement programs.”
Of the 15 companies who attended the discussion on benefit trends, two said they automatically enroll new employees in a 401(k) program during the onboarding process: Small Girls PR and Newell Brands. An HR representative of Blink Fitness said one of their previous employers also used the practice.
Small Girls PR, a New York-based public relations firm with under 200 employees, said the method has been successful among younger workers.
“We hire directly out of college, so our employees are mostly millennials and
Newell Brands said it has an older workforce demographic, but the company reports success with the program as well.
“Our data showed very few people opted out of the program,” said Keith Mason, senior vice president of HR at Newell Brands, the household-products maker with more than 53,000 employees. “People thought it showed the company cared about them.”
With an automatic enrollment retirement program, employees who don’t want to participate have to talk to HR about opting out. But most employees often find the process of opting out too tedious, and don’t follow through.
“Our society tends to ignore things that can’t be done instantly, which is usually perceived to be a bad thing, but in this case it helps you save for retirement,” Bowman-Zamora said.
However, most employees of these companies didn’t realize they were even enrolled in a retirement program until they were shown their 401(k) balance, the HR directors said. That’s because employee contributions to the retirement account were set at 3%, which is small enough to start saving for retirement without hurting a tight budget.
“[Employees] don’t notice a 3% contribution on their paycheck,” said Sarah Chen, benefits manager at Blink Fitness, a New York-based health company with over 1,000 employees. “But when they check their 401(k) balance they say, ‘Wow, I actually have a lot of money.’”
An employee who receives $1,000 each paycheck, for example, contributes $30 under the 3% rate. If the employee is paid bi-monthly, after a year they’ll have $720 in their retirement account. Mason said employers can sweeten the deal by offering a 401(k) match, like his company does. But he advises companies and their employees not to underestimate small contributions.
“It’s important to communicate the value of the 3% contribution,” Mason said. “Every little bit adds up.”
Other HR professionals in attendance asked whether these companies have seen an increase in 401(k) withdrawals since implementing an automatic retirement program. Bowman-Zamora and Mason said they haven’t experienced more account withdrawals than usual. If anything, their employees are enjoying watching their retirement savings grow, they said.
“People who take money out of their 401(k) are usually doing it for a very specific reason, like buying a home,” Bowman-Zamora said. “Most people leave it alone unless it’s an emergency.”
