The pandemic, of course, has changed everything. One Little Rock financial advisor has some advice for employers navigating the new normal and considering their options when it comes to retirement benefits, or whether they should offer them at all.
Sarah Catherine Gutierrez, MPP, CFP®, CRPS®, of Aptus Financial, spoke with Arkansas Money & Politics about what employers — and employees — should be looking for as open-enrollment season approaches.
AMP: Has offering a retirement package become almost a requirement for businesses looking to offer competitive benefits?
Gutierrez: Companies really need to offer retirement plans. Some experts estimate that only half of employees have access to a retirement plan. Employees are more likely to save when all they have to do is pick a savings rate and investment choice, and then set it and forget it. Without a doubt, the millennial and GenZ generations appear hyperaware of the need to build a retirement. Anyone paying attention sees this retirement crisis unfolding for the baby boomers despite many of them having pensions and a fully funded Social Security and Medicare benefit. It’s a major wake-up call, and these younger employees are educated enough to know that their retirement plan is their best hope to avoiding that tragedy.
AMP: What exactly should employees be looking for in a 401k/retirement benefits package?
Gutierrez: Employees should look for plans that offer comprehensive financial wellness as part of the retirement plan. The old way of doing retirement plans was an annual presentation on the investment menu that were as over people’s heads as they were boring.
Employees should look for companies with financial wellness programs on saving and investing for retirement as a baseline, and then with comprehensive financial education overlaid on top of that — counseling on adopting a strong cash management system, refinancing or managing student loans in the federal income-driven repayment and forgiveness programs, buying a house and figuring out what they can afford, saving for college, preparing for retirement, saving enough into an HSA, etc.
As employees in our financial wellness programs tell us all the time, they didn’t learn all this stuff in high school or college, and certainly not growing up. This is the first place they have to learn it all and have a chance of making strong financial decisions.
AMP: Has the pandemic changed anything about what employers should offer or how employees should plan for retirement?
Gutierrez: The pandemic has changed everything. In our retirement plans, we offered emergency meetings on student loans after the federal government suspended payments and interest, building an emergency fund and staying the course with investments. Given how scary that time early in the pandemic was, we were not surprised at the spike in attendance to those wellness meetings. Employees were telling us over and over how grateful they were that the company was offering this. More recently, we have done a push for people to increase their savings rates in their retirement plans to lock in savings while it is still relatively difficult to spend. We believe most people will carry those savings rates into the future and have a chance at building enough in savings to retire one day.
AMP: How much should employers be contributing to employees’ retirement plans?
Gutierrez: Whatever they can. Some companies have enough profit or cash flow to offer amazing matches to employee savings. That’s great, but companies who can only afford a safe harbor contribution or match shouldn’t worry. Having the plan in the first place is what matters. After all, employees should be more focused on their own savings, which accomplishes two things at once — adding savings to retirement and lowering their lifestyle to make it easier to make their retirement savings last with that lower lifestyle. We think of any employer match as gravy. Instead, what employers should focus on is lowering the fees that it costs their employees in the plan, because those fees erode retirement savings over time. And they should work with advisors who offer employee financial wellness and individual counseling without conflicts of interest — meaning, advisors who don’t sell products or insurance or try to encourage IRA rollovers out of the plan into managed accounts.