By Andrew S. Zito, AIF® | Executive Vice President, Retirement Plan Services | 07.27.2018
Millennials comprise one-third of the U.S. labor force, making them the single-largest generation at work today, according to Pew Research Center. But they don’t appear to be functioning as full-fledged members of the workforce just yet, at least when it comes to participating in benefit plans.
The National Institute on Retirement Security found that two-thirds of millennials work for employers that offer retirement plans, but only about half of that group participates. That means just one-third of working millennials are saving for retirement through employer-sponsored plans.
The culprit for such low participation originates primarily with eligibility requirements. Millennials are more prone to disqualifying factors like minimum hours worked or time with the company—products of being relative newcomers to the workplace and spending the early parts of the careers in a deeply challenging labor market. The passage of time will hopefully help relax these eligibility limitations.
There are other headwinds bearing down on millennials that could be holding them back from plan participation, and which present an opportunity for plan sponsors to demonstrate value to the largest working generation. Millennials have earned the most college degrees as a share of their generation, according to the Center for Retirement Research at Boston College, all while tuition costs have continued to outpace inflation. The resulting financial burden is compounded by the fact that millennials are earning less so far in their careers, despite their education gains, than older generations were earning at their age.
It’s important for sponsors to figure out how to enroll more millennials, and not just because it will generate goodwill. Boomers will continue to roll assets out of their plan accounts as they retire. The flight of their outsized share of plan assets will leave a smaller pool to share plan costs. Increased millennial engagement can offset this drawdown.
Plan design that gives due consideration to the rise of millennials should consider how to help with their financial needs and play to their strengths.
Harness Millennial Tech Savvy
Growing up immersed in an electronic and interconnected environment reduces the learning curve that millennials might face in using planning tools. Simple offerings like a loan payment calculator or retirement savings projection interface can make a profound difference on the path to financial preparation.
The flipside to millennials’ willingness to tinker is that they tend to over-scrutinize their investment mix. TIAA found that millennials are three times as likely as boomers to change their investment allocation amid a market downturn—typically a decision that ends in regret. The compulsion to de-risk tends to strike after the worst of the damage is done, leaving investors ill-prepared for the ensuing recovery.
Solutions like target-date funds can remove the need to think about allocations altogether, so millennials can focus on more effective factors like retirement savings or loan repayment rates and stretching for their full matching contributions.
Provide an Education Benefit Umbrella
Compound interest—the accelerant that makes saving and investing for retirement over several decades so effective—works in a similar way against borrowers that are slow to repay their loans. This is an acute problem for millennials, but it doesn’t stop with them. Almost three-fifths of 22 to 44 year olds have student debt, and they’re joined by more than one-fifth of those over 45 years old, according to PlanAdviser.
Employer-sponsored student loan repayment assistance can take a variety of forms. It can be as simple as directing participants to enroll for dedicated loan payments, and can extend all the way to helping them refinance at a better rate or consolidate multiple loans.
The education benefit umbrella can also cover tuition reimbursement programs for employees that want to continue their education but are hesitant to spend the money. These programs can also serve employee retention goals as they’re typically offered with a payback period if workers leave shortly after being reimbursed.
Any program that lowers employee financial stress will likely help improve productivity. From a practical standpoint, workers have more disposable income—and feel wealthier—once they’ve vanquished their loans. Being an advocate in helping employees accomplish that goal has obvious benefits for organizations that are seeking to retain members of the country’s largest working generation.
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