Meeting The Essential Savings Needs of the Modern Workforce | Schwab - Millennium Trust Company

Meeting The Essential Savings Needs of the Modern Workforce

May 18, 2022
By Millennium Trust
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As workers quit their jobs at a record pace during what has been called the Great Resignation, and more recently, the Great Reshuffling, many employers are grappling with a labor crisis.

Fueled by rapid turnover in a tight labor market, the gig economy’s promise of a life/work balance, and the rise of non-traditional or independent work opportunities, the wave of exits has the potential to disrupt more than employers’ abilities to retain skilled workers—it could also worsen the nation’s retirement savings crisis. The rapid turnover and disruptions in employment put even more of the onus for retirement savings squarely on workers, while threatening their ability to achieve overall financial wellness. It’s a burden many individuals were already struggling with and trying to address through frequent job changes.

This impacts employers, as financial stress is known to lead to an increase in absenteeism and tardiness, higher healthcare costs, and decreased productivity. In fact, anxieties surrounding workers’ personal finances can cost employers $1,900 per year per employee in productivity losses. Collectively, American businesses are losing $244 billion annually due to employee financial health concerns.

What can employers do? It starts by understanding how the needs of workers have changed.

It’s a new era

Gone are the days when companies could address financial security simply through tweaks to their traditional pensions or other employer-sponsored retirement plans, such as 401(k)s. While these retirement savings plans remain a critical component of financial health, today’s workers need other tools to help them stay on track as they move from one company to another—and across different categories of employment status.

Consider that in today’s workforce, job hopping is more prevalent. An analysis of LinkedIn data, for instance, found workers who graduated from college between 1986 and 1990 held approximately 1.5 jobs, on average, within the first five years of their careers. A decade later, workers who graduated between 1996 and 2000 were averaging slightly more than two jobs. That figure jumped to nearly 3 jobs on average for those who graduated between 2006 and 2010.

Not only are workers changing jobs more often, but they’re also moving in and out of different types of employment. Nearly 40% of American workers are now part of the gig economy, working independently or on a freelance basis. More importantly, less than 30% of non-traditional workers have access to a workplace retirement plan like a 401(k), and only 20% of independent workers are currently participating in a defined contribution plan.

Shorter job tenure contributes to the savings crisis

Employers know all too well that frequent job hopping makes it harder for workplace retirement savings plans to be effective, as employees don’t have much time to build wealth before moving to another job. Making matters worse, 21% of workers with 401(k)s who quit during the Great Resignation cashed out of their retirement account, triggering taxes and in many cases early withdrawal penalties, according to a recent Fidelity survey.

IRAs can play a bigger a role

As workers move in and out of the gig economy, with multi-year gaps in 401(k) participation, the burden is on them to save in other ways. By rolling their old 401(k)s (or other eligible workplace savings retirement accounts) into IRAs, and then contributing on their own to individual retirement accounts, employees can preserve their ability to save in a tax-advantaged manner while staying on track. Employers unable to provide 401(k)s to all their workers can still assist these workers through workplace programs that allow employees to contribute to IRAs through automatic payroll deductions.

The labor issue contributes to the retirement savings crisis

In many cases, workers aren’t cashing out of their 401(k)s because they don’t know any better. Often, they’re facing a real financial emergency because they lack non-retirement or emergency savings. This forces them to lean on their retirement accounts as a de facto rainy-day fund. Indeed, PwC’s Employee Financial Wellness Survey found that more than one third of Millennials, Gen Xers, and Baby Boomers have less than $1,000 set aside to cover unexpected expenses.

This underscores the need for workers to build up emergency savings not only to meet healthcare or other unexpected expenses, but also to prevent them from upending their long-term savings. Employees are clearly receptive to such a tool. A Betterment financial wellness employee survey found employer-sponsored emergency savings funds are among the most desired benefits sought by workers, trailing only 401(k)s, health savings accounts, wellness stipends, and flexible spending accounts.

Helping employees starts with giving them what they want

For more than 40% of those full-time employees who’ve recently quit their jobs, the decision to leave wasn’t about burnout or feelings of isolation amid COVID. They left because they found a job with better benefits or higher pay, according to the Betterment employee survey. The same survey found financial matters are becoming increasingly important to employees, as a majority are now feeling greater financial stress.

It’s not just about pay anymore. 70% of workers say they would prefer better financial wellness benefits at work over an extra week of paid vacation. And more than 80% believe financial wellness benefits are a sign that their employer values them.

With this trend expected to continue for employers of all sizes, revisiting workplace benefits programs and considering emergency savings solutions are becoming more essential to retaining and attracting skilled employees.

To learn more about solutions that can help address the needs of the modern workforce, visit Workplace Savings Solutions.

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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