The Fix: Retirement Readiness

A look at how behavior can influence employees’ willingness to save.

Funds, fees, and fiduciary responsibility have historically been the focus of conversations about retirement plans. But according to Jerry ­Patterson, senior vice president at Principal Financial Group, a deeper understanding of human behavior can help employers get their employees on the path to a successful retirement.

Everyone knows they should save for retirement. So why don’t they?

We’ve worked with a number of experts in the area of behavioral finance and human psychology and discovered there are some really powerful behavioral barriers that make it hard for human beings to actually save, even though we express the desire and intent to do so. A key learning for us was that we don’t care enough about our future self to make saving for retirement a priority. This is as true for millennials in a state of delayed adulthood as it is for retiring baby boomers who believe they will live forever and can always go back to work.

What can employers do to combat these inherent behaviors?

Make it easier for people to save. Employers that sponsor retirement plans can make a tremendous difference by adopting automatic plan features, such as automatic enrollment to get workers in the plan right away. They don’t have to make a decision, so inertia is not an issue. They’re all set. And recent studies show workers recognize the value of automatic plan features and overwhelmingly do not opt out when automatically enrolled.

Are there other plan design ­features that move the needle?

Other meaningful plan design strategies include stretching the matching formula to incent employees to save more without costing the employer anything extra and including the option of automatic escalation to increase contribution rates each year.

Our analysis over the years has found that saving 10 percent of your salary, plus any employer match, over the course of a working career is the key to achieving a more secure retirement. Organizations that adopt these smart plan design features are seeing tremendous improvement in the retirement readiness of their employees.


Jerry Patterson

By Jerry Patterson

Jerry ­Patterson is senior vice president at Principal Financial Group. MORE

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