Saving for retirement was hard enough without a global pandemic — so how can employers help their workforce save for the future now?
Some employers may be wondering if they can even afford to offer retirement benefits at this time. The economy has taken such a sharp downturn that more than 17 million people have filed for unemployment this year after being let go, according to the Bureau of Labor Statistics. To prevent more layoffs, employers may be considering eliminating some of their voluntary offerings; Chad Parks, founder and CEO of Ubiquity Retirement and Savings, says retirement shouldn’t be one of them.
“The harsh reality is the best thing [employers] can do now is focus on how to stay in business — but they shouldn’t do anything drastic and shut their retirement program down,” he says.
Parks spoke in a recent interview about how employers can help their workforce save for the future, and more immediate circumstances.
If employers are considering cutting their retirement programs, what’s an alternative?
They don’t need to shut down retirement plans; they’re a living entity with government protections — the money isn’t going anywhere. A viable alternative is to pause employer contributions to retirement accounts while this is going on. It’s better to suspend 401(k) contributions than to lay off employees. Once this is over, they can reinstate the employer contribution if they’re able to.
Should employees be worried about their retirement funds amid COVID-19?
The market volatility we’re seeing is unprecedented, but that doesn’t necessarily mean people should be worried about their 401(k). Your retirement account should be allocated properly for the age and amount of time you have until retirement. If you’re not allocated properly, then yes, there’s reason to be concerned: you’re taking more risks than necessary. Someone who won’t retire for at least another 10 to 20 years can afford to take more risks; think of all the market changes that have happened in the past 10 years alone. Just don’t take more risk than you’re comfortable with.
What are the best strategies employers should adopt to help with retirement?
The best thing employers can do right now is communicate to employees that they need to leave that money alone. The CARES Act eliminated penalties for early 401(k) withdrawal to help people who need emergency funds now, but people should avoid drawing from it as much as possible. I used to be a certified financial planner, and this is a controversial idea, but it’s better to use credit cards if you find yourself in a financial emergency. The reasoning is, if you get laid off and you’re unable to meet your financial obligations, you can rely on your line of credit until you find another job. Should the worst case scenario happen: you don’t find employment and are unable to pay off the debt, you can file for bankruptcy to get a clean slate, and your 401(k) remains intact. Federal law protects 401(k) balances from bankruptcy. The alternative is, if you decide to withdraw from your 401(k) early to avoid racking up credit card debt, you could find yourself in the same situation: in debt and having to file bankruptcy anyway. At least if you rely on credit cards first, your retirement fund remains untouched.
The best thing employers can really do at this point is to help employees with emergency savings. This is one of those strange times when saving for the short-term is actually more important than saving for the future.
How can employers help workers build emergency savings?
Employers probably won’t be able to make a savings account contribution right now, but they can help employees work with the wages they have. They should contact their payroll provider and ask about paycheck deductions; the provider can arrange to have a portion of employee paychecks go into a savings account — the same way it would for retirement and transit benefit deductions. If the provider can’t do this, employers may want to consider going with someone else.
