06 Oct Workforce participation: Entering later, staying longer

Originally posted October 3, 2014 by Nick Otto on https://ebn.benefitnews.com.

Retirement patterns are changing globally. As a result, providing employees greater retirement security and financial literacy can help employers cultivate a less stressed, healthier and more engaged workforce.

To fend off employee concerns about retirement savings, Shane Bartling, a senior retirement consultant at Towers Watson, says benefits managers should work to use impactful approaches to set smart retirement savings habits.

“Showing employees the age when their resources will maintain their lifestyle [and their] financial independence, provides a clear, personal and emotional motivation to save,” he says. That pre-retirement sweet spot, which the consultant firm dubs “the FiT Age,” can be reinforced with “emotionally impactful, personalized communications to drive behaviors, since auto-enrollment and auto-escalation may fall well short of what is needed.”

During the mid-to-late 20th century, labor force participation rates dropped for older workers and rose for younger ones. These trends have recently reversed, especially among men and younger workers.

More recently, a chart from the Senate Budget Committee shows that almost 1 in 4 Americans in their prime working years, between the ages of 25-54, are not working which could drastically affect changes in how and when an employee can eventually retire.

The trend of longer working careers is expected to continue, possibly even intensifying, according to recent Towers Watson survey results. On the other hand, those who are unemployed today require more and more education, resulting in many young adults putting off a potential job in favor of additional education. Typically, employees delay or take a break from labor force participation by spending more time in school.

Meanwhile, to assist employees to build better saving habits, Bartling advises that employers educate the advantages of increased tax efficiencies for workers which would provide for a stronger retirement. “Tax treatment of Social Security and post-retirement medical premiums makes Roth 401(k) and health savings accounts highly attractive for many workers, including [those in] middle income levels; tax efficiency alone may pay for a year of retirement,” he says.

“The risk of a workforce that is stuck, due to employee retirement financial shortfalls, merits re-examining how benefits are delivered,” he adds.  “Evaluate the business case for more efficient retirement benefit delivery,” adding that just matching contributions may not be the most efficient way to deliver benefits.