PLANSPONSOR - September 2017 - 19

hurts the ability to save. The question is
that of balance, [of] the type of career and
earning prospects, and lifestyle. For those
who have a high earning prospect as they
grow older, paying down debt is best. For
those who believe they are going to be on
a fixed, stable income as they grow older,
balance is needed. Retirement is important,
but most people don't think about
retirement savings till they are closer to
40. And a large percentage of our population
today carries student loan debt well
into their 40s. "
The majority of the borrowers are
paying their loans back over decades,
notes Mike Brown, managing director
of Nitro, a firm that provides advice
on paying for college. While only large
companies have begun offering workers
help in managing or even paying back
their student loans, Brown hopes this
benefit will resonate among more of
them. " It's a tremendous way to attract
talent, " he notes.
Managing to both pay off student
loans and save for retirement is a tough
predicament, especially if the student
loan debt is in excess of $40,000 and the
young graduate has a good job but not
much in terms of liquid cash after taxes,
Rajan says. " Using employer programs,
smart savings and so on are generally the
best options. The access to this type of
planning is not available because most
financial literacy is delivered for a broad
group of people, " he says.
" Five or 10 years ago, just talking
about retirement was sufficient, " Tom
Woods, senior vice president of sales at
Fidelity Investments, explains. " Now,
employees want you to help them with
a broader set of needs and in areas such
as debt management and student loan
repayment. They are looking for help on
the front end of that so they're not robbing
their retirement. " To address these needs,
Woods suggests incorporating a studentloan
management program into a total
financial plan that takes into account
savings and budgeting. -Rebecca Moore
Art by Katherine Streeter
Many
Miss Out
On the Full
Company
Match
AN analysis from Fidelity Investments
shows that more than one in five
employees (21%) contribute too little to
their 401(k) plan to fully capitalize on
their company's matching contributions.
Meghan Murphy, director at Fidelity
Investments in Boston, understands that
people have numerous competing financial
priorities. Many employees ask how
to save for retirement while paying off
student loan debt, she says. Generation X
is in this predicament, plus is paying for
day care and saving for their own children's
college education; Baby Boomers
are taking care of their parents. " There's
a lot in people's lives competing with
retirement contributions, " she says.
Joleen Workman, assistant vice president
of retirement at Principal, in Des
Moines, Iowa, says that, for many, retirement
can seem far away, and sometimes
the immediate needs of today get prioritized
over saving for tomorrow. " It really
comes down to balance, " she says. " It's
always important to pay yourself first-
meaning make sure you set aside your
savings before allocating your monthly
budget elsewhere-instead of saving
whatever's left at the end of the month. We
know from our behavioral research that
when we can automate big savings decisions,
and supplement that plan design
with education, people will save more. "
Retirement plans and company
match contributions are valuable benefits,
so employees should be encouraged
to save at least enough to get the
full match, according to Murphy. She
says Fidelity's analysis found that, of
the 21% not deferring enough to get the
full match, roughly half are only 1 to 2
percentage points away. " That small
bump could make a huge difference in
their retirement savings, " she says.
She notes that many new employees
are automatically enrolled into their
company's 401(k) plan, but employers
do not always choose a default deferral
percentage that will allow for the full
match. She points out that the most
common default deferral percent is 3%,
but the most common match formula is
50% of the first 6% of salary deferred.
Murphy advises employees to make it
their business to know how much they
must contribute to get the full match.
However, she adds, plan sponsors could
also raise their default deferral level.
" This is a trend we see, " she says.
" Forty-eight percent of plan sponsors
still use 3%, but, five years ago, 60%
did. Now, 51% are defaulting at a deferral
level higher than 3%. "
Workman observes, " We see truly
remarkable results that come with bestin-class
plan design. The combination
of automatic enrollment and auto-escalation
make it easy for people to make
solid financial choices, which ultimately
can lead to life-changing savings over
time. Overwhelmingly, we see people
stick with the plan when their decisions
are automated. "
According to Murphy, 75% of plan
sponsors have adopted automatic escalation
that an employee activates by opting
in. Enrolling employees automatically
into auto-escalation has also become
a trend. " That number has gone from
about 11% five years ago to about 16%
now, " she says. " Employers recognize
inertia-that people don't tend to review
their savings each year. "
Workman concludes, " The more
plan sponsors can do to make it easy
for their employees, the better off [the
employees will] be financially. "
-Rebecca Moore
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PLANSPONSOR - September 2017

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