Meeting the Essential Savings Needs of the Modern Workforce

Even as the wave of quitting known as the Great Resignation slowed down in late 2022, the factors behind it could have a long-term impact on employers’ abilities to keep skilled workers and on the nation’s retirement savings crisis. Rapid turnover and employment disruptions often increase the retirement savings burden on workers, threatening their ability to achieve overall financial wellness. It’s a burden many were already struggling with and trying to address through their frequent job changes.

A burden shared by employers

Having financially stressed employees leads to increased absenteeism and tardiness, higher healthcare costs, and decreased productivity. In fact, anxieties arising from personal finances have been estimated to cost employers $1,900 per year per employee in productivity losses. Collectively, American businesses could be 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 plans are a critical aspect 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 employment statuses.

An analysis of LinkedIn data found workers who graduated from college between 1986 and 1990 held approximately 1.5 jobs, 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 three 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 significantly, less than 30% of non-traditional workers now 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

Frequent job hopping makes it harder for workplace retirement savings plans to be effective, since employees have little time to build wealth, especially when vesting is involved, 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, they need opportunities 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 their 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 help these workers through workplace programs, including Payroll Deducted IRAs and SIMPLE IRAs, which allow contributions to IRAs through automatic payroll deductions.

The labor issue contributes to the retirement savings crisis

In many cases, workers cashing out of their 401(k)s aren’t doing so because they don’t know any better. Often, they’re facing a financial emergency because they lack non-retirement or emergency savings. This forces them to treat their retirement account like a rainy-day fund. 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 to encourage workers to build emergency savings, not only to meet healthcare or other unexpected expenses, but also to prevent them from endangering their retirement 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 survey. The same survey found financial matters are becoming increasingly important to employees, with a majority now feeling greater financial stress. Also, the majority view financial wellness benefits as a sign their employer values them.

With these trends expected to continue, revisiting health savings and other workplace benefits programs, including emergency savings solutions is becoming essential to keeping and attracting skilled employees for employers of all sizes.

To learn more about the range of savings solutions we offer to help you address the financial well-being needs of the modern workforce, view our Workplace Savings Solutions and those of PayFlex®, a Millennium Trust solution.

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.