In support of National Retirement Planning Week 2015, we asked Alex Hannah, ICMA-RC Vice President, Marketing Communications & Education, to contribute the following post on retirement planning tips and resources for public sector employees.
It’s important for public sector employees to plan and save for a comfortable retirement —whether they are just getting started in their career or have been working for their cities for some time. While many public sector employees will receive a defined benefit pension, it is unlikely to cover all retirement costs. And not all public employees will fully vest in their pension while some do not participate in Social Security.
Added savings to an employer-sponsored retirement plan, such as a 457 deferred compensation plan, and an IRA can be the difference between a financially adequate and successful retirement. Equipping public sector employees with these options and the educational resources to help them save for retirement is key.
Here are a few ways that local governments can help provide their city employees with the tools and resources to build a secure retirement:
Offer efficient ways for employees to enroll in the city’s retirement savings plan.
Many employees delay saving for different reasons, and among them is a perception that getting started can be complicated and take time. One way to combat this is to simplify the process by offering online enrollment, allowing employees to join the plan using a computer, smartphone, or tablet.
Research indicates that employees today, especially younger employees, will use whatever device is within reach, so making the savings plan accessible and easy to enroll across all hardware is important. As an example, an employee could use a smartphone to immediately enroll in the plan while attending an enrollment seminar or online webinar. Once enrolled, messaging is communicated across platforms that employees can use to easily increase contributions to their account. Increasing contributions by even $10 or $20 more can add up over time.
Another way to simplify the enrollment process is through a method called quick enrollment, which allows an employee to enroll in the plan by making just a few choices. The employee is defaulted into investments based on a predicted retirement age. After enrollment, additional education is provided along with direct access to their account so they can make changes and alter their account to reflect their personal goals. This strategy minimizes hurdles to enrollment and allows employee to begin saving for retirement.
Use automatic features to boost savings.
Another reason public sector employees may not begin saving for retirement is inertia; features such as automatic enrollment can address this plan challenge. Auto-enrollment is a feature in a retirement plan that allows an employer to “enroll” an eligible employee in the employer’s plan unless the employee affirmatively elects otherwise. The employee may choose not to contribute at the plan’s default percentage rate or decide to contribute a different amount. Auto-enrollment has proven effective in helping employees get started in saving for retirement.
In addition, some employers may want to consider offering an automatic escalation feature, allowing plan participants to increase contributions automatically over time. The study, “Using Automatic Escalation in Public Sector Retirement Plans to Increase Savings,” from the Center for State and Local Government Excellence, provides recommendations on how governments might incorporate such policies into their defined contribution retirement plans. More research on public sector workforce trends is available on the Center’s website at www.slge.org.
Develop and support an education curriculum with the goal of improving financial literacy.
In order to make smart decisions about their finances, employees need access to the proper financial tools and resources. They may want to understand basic investment concepts such as compounding interest, diversification, and the impact of inflation as well as their risk tolerance.
Knowing the tax treatment of these plans is also important information for city employees. They could also benefit from debt management education; lower debt means employees can focus more of their efforts toward saving for retirement. These concepts, and others, can be explained in a straightforward way when meeting with a local plan representative or through multiple media platforms to accommodate employees’ learning styles, including online resources such as a mobile app, video, calculators, and webinars. The RealizeRetirement® educational resources at www.icmarc.org/realize, contains a wide array of multimedia tools city employees can use, at any stage of their career.
Founded by the public sector for the public sector more than 40 years ago, ICMA-RC’s only mission is to help public sector employees build retirement security. Put simply, we work with public sector employees to help their employees save for the future and the concepts I have outlined are some of the ways that employers can help their employees have a successful retirement.
This article is intended for educational purposes only and is not to be construed or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice and shall not have any liability for any consequences that arise from reliance on this material. It is recommended that you consult with your personal financial adviser prior to implementing any tax or retirement strategy. Copyright © 2015 ICMA-RC. All rights reserved. AC: 0415-7702
About the Author: Alex Hannah is responsible for education and marketing communication strategies for ICMA-RC, a financial services organization focused exclusively on serving public sector employees.