Stock market decline, inflation, and fear of recession can lead employees to decrease or drop their retirement contributions. A recent survey of 1000 adults by Voya Financial (1) found that:
- 66% of respondents are worried about how inflation will affect their ability to save for retirement
- Concern of inflation’s effect on retirement is higher among younger workers (73% of millennials and 74% of Generation X)
- 43% of respondents had to tap into their retirement savings because of inflation
HR has an important role to help encourage employees to continue to participate in their retirement plan. Actions that HR can take include:
- Continue to tout participation in the retirement plan and explain the merits, even during economic downturns
- Increase the frequency of communication about the retirement plan
- Consider providing financial advisory services for employees
- Ensure that employee communication demonstrates empathy and understanding
- Provide pay and benefit increases for employees to the extent feasible
As Michael Majors, vice president of HR Solutions Sales at HR at Paychex, suggests, “it’s important for employers to communicate that the most effective strategy for employees to stay on track with retirement plans is to stay the course with their contributions, [while reminding] employees that the stock market and retirement balances regularly ebb and flow, but balance out in the long run.” (1)
Retirement Portfolios have Improved in the Recent Past
Retirement plan investment strategy among employees have improved in the last 15 years. The improvement demonstrates more participant sophistication suggesting that employees may be receptive to retirement savings advise. According to a Vanguard study (2):
- In 2005, just 39% of participants had a balanced strategy. By 2021, that number had risen to 78%.
- Participation rates are high (93% with automatic enrollment and 66% with voluntary enrollment).
- Median deferral rate was 6.1% in 2021
- Median total participant contribution rate was 10.4% in 2021
- 83% of participants who separated from service either remained in their employer’s plan or rolled over their savings to an IRA or the plan of their new employer.
(1) https://hrexecutive.com/inflation-market-volatility-are-hurting-retirement-optimism-what-can-hr-do/
(2) https://www.benefitspro.com/2022/06/27/trends-in-retirement-investors-behavior/