Employer-Worker Disconnects on Retirement Security
Al Waller: Amid concerns about the estimated depletion of the Social Security Trust Funds by the mid-2030s and fears that workers are inadequately saving, retirement security is a hot topic these days.
Welcome back to ClearPath – Your Roadmap to Health & Wealth SM. I’m your host, Al Waller. Joining me is Catherine Collinson, founding CEO and president of nonprofit Transamerica Institute® and its Transamerica Center for Retirement Studies®. In this second part of a two-part episode, she’ll be discussing the new report from her team titled Stepping Into the Future: Employers, Workers, and the Multigenerational Workforce. It examines employers’ offerings and workers’ unmet needs. It is based on a survey of 1,800 for-profit U.S. employers and it features comparisons with a survey of 5,700 workers in for-profit companies.
Catherine, what are the topline findings about employers, workers, and retirement security?
Catherine Collinson: Seven in 10 employers feel responsible for helping their employees achieve a financially secure retirement, which is remarkable to me because retirement is less immediate than other ways that employers feel responsible, for example, by helping employees maintain their physical and mental health.
Al Waller: In Part One of this episode, we discussed employer disconnects, as well as employer-worker disconnects. I suspect your research may have found disconnects related to retirement security. What did your research find?
Catherine Collinson: Al, your hunch is indeed correct. The research found multiple disconnects albeit with some similarities. Let’s start with a striking similarity between employers and workers. More than eight in 10 employers (81%) feel that an employee-funded retirement plan, for example a 401(k) or similar plan, is important for attracting and retaining employees. At the same time, 82% of workers agree that retirement benefits offered by a prospective employer will be a major factor in their final decision-making when job hunting.
However, the survey findings start to unravel from here. Consider this disconnect: Only 58% offer a 401(k) or similar plan to their employees.
Al Waller: During my career as a Human Resources consultant, my colleagues and I indeed found that offering benefits such as health insurance and, for the purpose of this conversation, retirement benefits was important in their ability to compete for talent. And we observed that larger companies were more likely to offer benefits than smaller ones.
Catherine Collinson: That’s a great point. Much of the benefit gap in our survey findings is attributable to smaller companies. For example, only 51% of small employers with fewer than 100 employees offer a 401(k) or similar plan, compared with 92% of large employers with 500-plus employees. I’ll share some good news in that more than four in 10 employers (42%) that do not currently offer a plan indicate they are likely to begin doing so in the next two years.
Al Waller: That is good news!! We see a lot of headlines these days that workers are not saving enough for retirement and that they’re concerned about running out of savings in older age. To what extent is this an issue?
Catherine Collinson: This is a big issue and area of concern. Our survey looks at retirement confidence and finds another employer-worker disconnect. It appears that employers are potentially overestimating workers’ level of confidence. More than eight in 10 employers (83%) are very or somewhat confident their employees will be able to achieve a financially secure retirement, compared with just 68% of workers who are confident they will be able to fully retire with a comfortable lifestyle. Moreover, only 23% of workers are very confident.
With regard to retirement savings, the survey findings illuminate a glaring gap among workers by company size, which helps show the impact of having access to workplace retirement benefits. Specifically, workers of large companies have saved $115,000 in total household retirement accounts and those of medium companies have saved $69,000, while small-company workers have saved only $36,000 (estimated medians).
Al Waller: Not only are these differences dramatic, but they also raise the question whether workers of all company sizes are saving enough. After all, these savings will need to last a retirement that could span 20 or 30 or more years.
With people having the potential to live longer than ever before, what are their expectations regarding time in the workforce versus retirement? It seems to me that many workers may be planning to extend their working lives so they can save enough by the time they do retire.
Catherine Collinson: Al, you're exactly right. Our survey finds that many workers do seek to extend their working lives, and in large part to be able to save more so that they can afford to retire when the time comes.
To your point, working longer and fully retiring at an older age can help bridge savings gaps and enhance retirement security. However, for many workers, it’s not a given, and there are some obstacles to overcome.
First of all, they need to protect their health and keep their job skills up to date so they can continue working – which are two areas of disconnect. Our research finds that workers are not yet doing as much as they should in both of these regards.
Secondly, workers’ ability to achieve success depends on employers having business practices in place to support them – which is another area where the research finds big disconnects. More than half of workers expect to work beyond traditional retirement age, and more than half expect to continue working at least part-time in retirement. Many workers envision a flexible transition, for example reducing hours or working in a different capacity. But relatively few employers offer a formal phased retirement or less formal flexible transition options.
Al Waller: While these may sound like big problems, they are also major opportunities for employers and workers alike. In my own experience, employers that offered a strong benefits package and flexible retirement options were able to compete more effectively for talent and pave the way for smoother transitions when employees decided to transition into retirement.
As we wrap up this episode, what more would you like our listeners to know?
Catherine Collinson: My message for employers is to share my appreciation for the vital societal role you play in helping workers save and prepare for the future. It’s exciting to me that more employers are offering benefits and/or are planning to do so. For those currently offering benefits, I encourage you to work with your plan providers to ensure your employees are taking full advantage of the services and educational resources that come with the plan.
My message for workers is to start saving as early as possible and save consistently because even small amounts can add up over time. If you are offered a 401(k) or similar plan, learn as much as possible about saving, planning, and investing, and take full advantage of the plan’s features that are right for you. If you don’t have access to a plan, we recently dedicated an episode of this podcast to Saving for Retirement if You’re Not Offered a 401(k). I hope you’ll give it a listen.
One last message for both employers and workers is to learn about the SECURE 2.0 Act of 2022, including its provisions that could help employers enhance their plans and its provisions that facilitate greater retirement savings among workers. Earlier this year, we dedicated an episode of this podcast to the new legislation, 6 Ways SECURE 2.0 Boosts Retirement Security. Check it out.
Al Waller: Thanks, Catherine, for your insights and helpful tips.
For our listeners, if you’re interested in reading the new report Stepping Into the Future: Employers, Workers, and the Multigenerational Workforce along with other informative materials, please visit www.transamericainstitute.org.
Until our next episode, stay safe, be well, and thanks for listening.
ClearPath – Your Roadmap to Health & Wealth is brought to you by Transamerica Institute, a nonprofit private foundation dedicated to identifying, researching, and educating the public about retirement security and the intersections of health and financial well-being.
You can find our weekly podcast on WYPR’s website and mobile app, wherever you get your podcasts, and at transamericainstitute.org/podcast.
ClearPath – Your Roadmap to Health & Wealth is produced by the Transamerica Institute with assistance from WYPR.
The information provided here is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical, or financial advice or guidance.
