The end of a calendar year might be a good time for plan sponsors to take a look at their retirement plans and encourage employees to make changes that will help them do a better job of saving for their futures, but 401(k) communications during the busy holiday season might get lost in the shuffle.
Rebecca Katz, principal and head of Vanguard’s participant strategy and development, says she believes plan sponsors should avoid sending retirement messages between Thanksgiving and New Year’s.
“First, the mindset of most people at this time of year is around consumption and spending. If you are sending a message about retirement savings, it is like offering a kale smoothie at Mardi Gras. It is good for you, but is not accepted,” she says.
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One of the biggest problems is that everyone’s inboxes are bursting with emails about deals and shopping. Any retirement messages that are sent out have a very slim chance of capturing anyone’s attention, she says.
“We really discourage sending emails unless a specific plan-related change has to be communicated,” she says.
Katz recommends that plan sponsors send out retirement plan messaging between September and November every year because that is the time companies have to get people to sign up for health and life insurance benefits anyway.
Right after the holidays is a good time to send out messages about saving more for retirement, says Katz, although the response rate is only slightly higher than if companies just let participants figure it out on their own. Many workers begin thinking about savings after the madness of the holidays is over.
But there are specific retirement planning messages employers may want to reinforce at this time of year, says Cindy Lapoff, legal and regulatory consultant at Manning & Napier.
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She recommends that employers remind employees that they should maximize their pretax retirement plan contributions for the year and if anyone is in a position to top off their contributions or make the maximum IRS contribution before the end of the year, they should do it.
Employers also can remind employees over 50 that they can save an additional $6,000 over the $18,000 cap for 401(k) pretax contributions.
Jerry Patterson, senior vice president of retirement and income solutions at The Principal, says that his top piece of advice would be to encourage employees to fight the inertia and seek the help of a financial professional.
The Principal is currently conducting research on consumers and how they think about retirement savings and investing. In interviews with plan participants, many say they know they need to speak to a financial professional, but 90% of those who know they should don’t end up doing anything about it, says Patterson.
Employers should take time in the new year to make sure their employees are taking full advantage of their 401(k) plan, says Patterson.
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“Everybody should be on a plan, a track to save at least 10% of their income,” he says. If they aren’t, this is where automatic features in a plan can come in handy. Automatic escalation takes the decision out of the hands of plan participants by raising their annual retirement plan contribution by 1-2%.
Richard Davies, senior managing director and global head of defined contribution for AllianceBernstein, agrees, saying that employers should encourage employees to save as much as they can to try and reach a 15% of income savings objective.
“At a minimum, at least [save enough] to get free money from the employer as a match,” he says.
Davies adds that most employees don’t see themselves as investors, but as savers. That mentality is reflected in the types of investments they choose for themselves, like money market funds and stable value funds, “investments that any investment professional would say are too conservative.”
For investors who are not that confident, he recommends target-date funds.
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“Whatever your plan sponsor picks is going to be far better than trying to put together a mix on your own, especially if it is going to be in very conservative investments,” Davies says.
Patterson also recommends plan sponsors talk to employees about their stock purchase plans.
“There’s free money on the table. Take full advantage of it if you can,” he says.
For employees over the age of 65, Lapoff says that employers should be proactive in speaking to them about how Medicare interacts with their employer-sponsored benefit plan. That will vary by the size of the employer, the size of the health plan and individual circumstances, she says.
Financial wellness has been a huge topic in 2015, with many large employers offering programs to their employees. As the end of the year rolls around, plan sponsors should make sure employees are aware of any financial wellness topics being offered. It is a great way to get employees thinking about their financial health in the new year, Lapoff adds.
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Lastly, employers should speak to employees about how they can turn their retirement savings into guaranteed income in retirement, says Davies.
“Very few plan sponsors have taken steps to help plan participants convert the balance of their retirement into a stream of income, guaranteed or not,” he says. “They would love to have a defined benefit plan back, but that is not going to happen in the public sector or the private.”
Paula Aven Gladych is a freelance writer based in Denver.
