Motivating Savings with Financial Wellness and Plan Design

March 20th, 2018
by Jonathan Leidy

RPM Q1 2018_Pulse Image_Blog Article 2_Motivating Savings with Financial Wellness and Plan Design

On average, 42% of Americans make money-related resolutions at the beginning of each year.  However, in less than 6 months, half of the “once dedicated” abandon their goals.[1] But, as we all know, it takes longer than 6 months to reach a meaningful retirement savings objective.

So, how can you, as a plan sponsor, sustain that resolution momentum so that your employees continue to save for retirement? In this article we will discuss holistic ways to promote financial wellness among your employees as well as plan design tips aimed at increasing participation and savings rates.

Employee Savings Goals

We’ve all heard the saying, “if you don’t know where you’re going, any road will get you there.” However, without a financial goal, many are left unprepared and money has a way of slipping away when there is no clear savings path.

As a retirement plan advisor, my job would be so much easier if all of your employees were focused on saving for retirement; but in reality, if they are financially stressed, retirement is the last thing on their minds. Depending on the age and financial situation of your workforce, top concerns may range from meeting monthly expenses, to paying off debt or saving for college, to caring for aging parents. It’s important to understand that saving is a journey and even though each of your employees may be in a different spot, the act of saving needs to be constant.

TIP: Encourage your employees to maintain an active list of financial goals. This will help them set a savings path and may help you to determine a more focused financial wellness program or specific education topics.

Savings Buckets

The three-bucket principal is a way of simplifying the art of saving for participants. First you fill bucket #1 and once it is full, savings begin pouring into bucket #2, then it is on to the final bucket. Each bucket holds savings for a specific goal: Bucket #1 is reserved for Emergency Funds; Bucket #2: The Middle Bucket; Bucket #3: Retirement Bucket.

Bucket #1: Emergency Funds |Bucket #2: The Middle Bucket |Bucket #3: Retirement Bucket

Savings Buckets Image

Plan Goals

Beyond the holistic efforts of financial wellness that address the financial hurdles your employees face, there are steps you can take at the plan level that can motivate positive savings habits. Automatic features such as auto-enrollment and auto-escalation are two plan design elements that can help you to increase plan-level participation and deferral rates.

Auto-enrollment is an excellent plan design feature to help get new hires saving from the get-go. In fact, Vanguard research shows that plans with auto-enrollment boast participation rates reaching 90% whereas plans with voluntary enrollment fall short at 63% participation.[2] You may also consider adding features that enroll (or backsweep) workers who may not have been previously enrolled in your 401(k) plan.

Participating in the plan is great, but you want your employees to be saving at the right rate. One way to help is by implementing an auto-escalation feature.

Consider enrolling (or re-enrolling) employees into the plan at a modest 5% savings rate, then increase the deferral by a set percentage each year until a more meaningful rate is reached.

Optional Formulas

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Always Moving Forward

Creating a culture for your employees to save begins with a dialog; we are happy to help with that conversation. At Portico Wealth Advisors, we feel that employee education and empowerment starts with the plan sponsor. Thus, we aim to provide resources and tools that help you help your employees move toward their savings goals.

Need help starting the conversation with your employees? DOWNLOAD this free infographic that introduces timeline focused goal setting, budgeting tips and savings buckets.

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation.

[1] Statistic Brain. “New Year’s Resolution Statistics.” Jan. 2017.

[2] Vanguard. “How America Saves.” June 2017.