Employers are pouring money into 401ks to encourage retirement
- Employers are increasing their 401k contributions to get employees to save more for retirement, reports The Wall Street Journal (WSJ). Workers aren't saving enough for retirement so businesses, especially tech companies like Microsoft and Ultimate Software Group Inc., are boosting their contributions.
- Employers' 401k contributions rose to 4.7% of workers' wages in 2016, up from 3.9% in 2015, says WSJ, citing data from 1,900 retirement savings plans run by the Vanguard Group. The increase was the biggest since the 2007 financial crisis.
- One reason for the unusual and costly move is to ensure that older workers save enough to retire on time — making room for new, younger talent, says WSJ. Employees who don't have enough money to live on in retirement will keep working.
Employers are responding to a real problem. Workers need to save at least 15% of their earnings to retire comfortably, say retirement experts. Studies consistently show that workers at various ages aren't putting nearly this amount into their accounts.
For example, data from Prudential showed that women's savings are a third of men's. A Financial Finesse report found that millennial women need to save more. According to Employee Benefits Adviser, boomers lag behind millennials in saving for retirement. And the Addison Group’s Third Annual Workplace Survey found that Americans in general worry about if or when they'll ever be able to retire.
Employees age 60 and over were caught in the transition employers have made from phasing out pensions to offering retirement savings plans, whereas subsequent generations are more likely to be in a defined contribution plan. Boomers' parents could count on a lifetime pension. But with people living longer and the cost of benefits climbing, employers saw 401ks as a less costly retirement benefit.
As much as employers want to attract and retain young talent while harnessing the knowledge of older workers and cutting the healthcare costs associated with aging, they must avoid any actions that could violate the Age Discrimination in Employment Act (ADEA). Firing, refusing to hire or promote, or taking any adverse employment action on the basis of age, 40 and older, is against the law.
- The Wall Street Journal U.S. Companies Have a New 401(k) Fix: Spend More
- HR Dive Prudential: Women's 401k account savings are one-third lower than men's