A Collaborative Path Toward a Well-Funded Employee Retirement

By:

MissionSquare Retirement

September 17, 2024 - (6 min read)

Economic Opportunity & Workforce Development

Authored by Senior Researcher at MissionSquare Research Institute Gerald Young

Discussions around retirement benefits often devolve into false either/or choices around defined benefit and defined contribution plans, tiers that pit existing employees against new hires or the details of actuarial formulas. The current labor market suggests the importance of an alternate vision: collaboration to design a benefits package that provides a well-funded retirement, while ensuring long-term fiscal sustainability. Absent such an approach, public sector recruitment and retention will continue to become more difficult.

MissionSquare Research Institute, in partnership with the Public Sector HR Association and the National Association of State Personnel Executives, has been surveying HR managers since 2009.

In the first years of the survey, very few positions were considered hard to fill. At the time, the recession had led to hiring freezes and layoffs, and in the few places where recruitment was taking place, there was little difficulty in finding job candidates. By 2022, however, 19 positions were considered hard to fill by more than half of all respondents. However, as of the 2024 State and Local Workforce Survey, for many of those positions, the share rating them that way had dropped by 10 percentage points or more. While that improvement is notable, challenges remain to find sufficient qualified candidates to fill all vacant positions.

Among the strategies employers are using to address those gaps are referral bonuses to staff who recommend a successful job candidate (offered by 19% of respondents). As for helping those new hires fully acclimate to the organization, programs such as employee resource groups (13%) and mentoring (12%) facilitate building support networks that benefit both the employees and the organization.

Such win-wins can also be achieved with regard to retirement benefits. One of the common challenges employees face is a raft of competing financial priorities.

Whether due to ongoing expenses like rent or emergency expenditures, such as for a car repair, many fail to contribute anything (or as much as they would like) toward their retirement savings. In a Research Institute survey on morale and retention from 2022, 77% indicated that their level of debt prevented them from saving more toward their retirement, while 75% indicated that other financial goals were similarly impacting their ability to build retirement savings.

Two approaches that may help with this are more active engagement with employees around their priorities and partnerships that enlist employee groups to make individual saving habits easier to start and maintain.

Regarding engagement, the Institute’s survey on Public Sector Employee Financial Wellness Program Needs and Preferences showed that 67% of those not offered such a program or not yet participating in one would be likely to participate in the future. While this points to a desire for more resources generally, employers can also conduct their own surveys to tailor their program offerings to meet the topics of greatest interest — demonstrating that they are both listening and responding to those employees’ opinions.

One of the most effective ways to build a savings habit is by default participation. Typically, a deferred compensation retirement plan depends upon both an employee’s decision to enroll and the selection of the amount they plan to contribute. Aside from the paperwork involved in completing this process, there is also an educational hurdle to overcome. Just as employees may not know all they would like to about investments and budgeting, they may not know how much is appropriate to be setting aside to have adequate retirement income.

Since savings habits are best formed early, another relevant resource is the Institute’s report 35 and Under in the Public Sector: Why Younger Workers Enter and Why They Stay (or Don’t). In that survey, more than half of employees indicated they were interested in more information about both how much they need to save before retiring and how much they should be saving for retirement at this stage of life.

So, beyond general financial education, how can employers help their less-engaged employees achieve retirement security? Some are doing that through auto features. Autoenrollment in a deferred compensation plan assumes that most employees would want to participate and takes that administrative step off their plate. This is not a mandate — in fact, all employees retain the right to opt out of participation. Rather, it is a means of nudging employees toward a saving habit. Some employers supplement that nudge with an autoescalation provision, so that at predetermined times, the amount the employee contributes increases. Again, employees can opt out or to set a different level they would like to save.

The partnership aspect of these arrangements comes in because not every state allows local governments to implement autofeatures. But since providing employees with a well-funded retirement is an interest of both employers and employees, some governments have partnered with unions or other employee groups to implement autofeatures via collective bargaining. For a further discussion of autofeatures and case studies in the various ways they have been implemented, see Automatic Enrollment and Automatic Escalation in State and Local Government Defined Contribution Plans.

Some governments have partnered with unions or other employee groups to implement autofeatures via collective bargaining.

As employers are looking to partner with employees for a stronger retirement and enhanced staff retention, another avenue to consider is peer support. According to the data in the annual workforce survey, mentoring programs were less common during the pandemic, hitting a low point of 7% of governments offering them in 2022. That total has since inched back up to 12%. In addition, 13% indicated that they support employee resource groups. Such networks play key roles not only in helping new staff acclimate to the organization and become more engaged, but also in making good financial decisions.

In the survey of state and local staff 35 and under, 20% indicated they turn to a mentor at work for advice on their employee benefits, and 57% of those without a mentor indicated they would be interested in having one and would turn to them for such advice.

Mentorship programs, employee resource groups and financial wellness education may seem unrelated to helping employees achieve a well-funded retirement. But peer support, behavioral nudges and even labor/management partnerships can enable more informed choices about long-term financial planning.