The hiring and onboarding process is a crucial time to encourage new hires to evaluate their retirement savings goals.
A new job is a significant personal and professional transition. Your latest employees are likely focused on getting up to speed and making a strong impression. But they often face unintended setbacks to their retirement savings each time they switch jobs.
According to the industry news source BenefitsPRO, employees who lose focus on their savings rates when enrolling in a new retirement plan can lose up to $300,000 over the course of their careers.
Your organization plays a vital role in helping them avoid costly mistakes. Guiding them toward maintaining or increasing their retirement contributions during this transition can impact their long-term financial security.
Let’s explore why this issue arises and how you can help employees stay on track with their retirement goals.
The hidden risks of lower savings during job transitions
Switching jobs can impact retirement savings more than many employees realize. Recent 401(k) plan enhancements, including automatic enrollment and escalation, have significantly increased overall participation and savings rates. But on an individual level, these elements can have unintended downsides for workers who switch to a lower default savings rate.
The investment firm Vanguard notes that default savings rates have an outsized influence on employees’ savings. This can be helpful when the default rate maintains or increases an employee’s retirement savings. But it can lead to losses when the opposite occurs.
According to Vanguard, organizations’ most common default savings rate is 3%. If a new hire was saving 8% with their former employer, but then enrolls in a 401(k) plan at a 3% default rate, their savings and investment outcomes can significantly decrease.
These numbers from Vanguard show the impact:
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Nearly 65% of employees who switch jobs receive a raise. Only 44% save for retirement at the same or a higher rate.
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The median pay increase for a new job is 10%. But there is a 0.7% median decline in retirement savings rates. (Vanguard attributes this gap to lower default savings rates and individuals forgetting to sign up for their new employer’s retirement plan during onboarding.)
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Over 50% of employees automatically enrolled in a 401(k) stay at the default savings rate throughout their first year.
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Without automatic enrollment, nearly 25% of new employees don’t enroll in their retirement plan.
BenefitsPRO notes that these trends can lead to hundreds of thousands of dollars in lost retirement savings over an employee’s career.
Strategies to support retirement savings
Incorporating the following five strategies can help you reduce or reverse the retirement savings decline linked to new hires:
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Start the conversation early.
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Establish clear and varied communication channels.
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Increase your plan’s default savings rate.
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Offer user-friendly digital tools.
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Provide ongoing education.
Start the conversation early
Include retirement planning as part of your onboarding process. Talk to new hires about your retirement plan and how it supports their long-term goals. Help employees understand the connection between their previous savings rate and your plan’s options.
Encourage new employees to maintain or increase their savings rate. Educate them on retirement plan designs such as automatic enrollment, automatic escalation, matching contributions and target-date funds. Demonstrate how these elements can grow their savings over time.
World Investment Advisors recommends explaining your plan in plain, concise language. Industry jargon and complex financial terms can hinder participation by overwhelming or intimidating new hires.
Establish clear and varied communication channels
New hires often face a lot of paperwork and employer communications during onboarding. The sheer volume can distract them from retirement planning.
To engage them during this critical time:
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Communicate about your 401(k) plan across multiple channels, including benefits paperwork, introductory meetings, emails, newsletters, intranet posts and text messages.
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Share peer testimonials. Current or former employees’ stories about how they benefited from participating in your plan can be powerful. Using written and video formats can make them more compelling and accessible.
Using varied communication channels will increase your chances of breaking through the noise of this busy transition period.
Increase your plan’s default savings rate
Default savings rates are a powerful driver of employees’ retirement selections. Vanguard recommends that employers set a default savings rate of 6% or higher.
Employees tend to stick with the default rate during their first year. Coupled with automatic escalation, higher default savings rates can positively impact employee outcomes when switching jobs.
Offer user-friendly digital tools
Simple plan designs and digital onboarding education can drive participation and understanding. Ensure employees can easily enroll in your plan and manage their savings options with:
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A user-friendly online platform or app
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Step-by-step instructions, supplemented by audio, visuals and videos
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Retirement calculators and planning tools
These options empower employees to take control of their retirement strategy. They also minimize paperwork and make plan navigation accessible for different learning styles.
Provide ongoing education
Financial education starts with onboarding, but it shouldn’t end there. Offering annual or semiannual retirement check-in events can help employees assess and adjust their savings rates as needed.
These events might include retirement calculators and scenario planning to help employees make informed decisions. Offering sessions with a financial adviser can provide them with personalized information based on their goals and circumstances.
In addition, send periodic reminders about increasing savings rates to coincide with salary increases, bonuses and other financial rewards.
Personalized, proactive communications and education reinforce the value of retirement savings adjustments.
Your adviser can support your efforts
Retirement plan design and education play a vital role in your employees’ well-being. Helping new hires assess their retirement security can be a powerful tool for financial wellness, plan satisfaction and organizational retention.
Partner with your insurance broker or benefits adviser to explore plan features such as automatic enrollment, automatic escalation and matching contributions. They can also help you tailor your communication strategies to enhance your employees’ journey from onboarding to retirement.
