Workers Save More for Retirement When Employers Tell Them to, Study Says

By Francesca Fontana Features Dow Jones Newswires

There is new evidence that employers can help persuade even their most stubborn employees to save more for retirement.

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When the State of North Carolina's retirement division sent email "nudges" to older public employees taking part in its supplemental savings plans, those workers were more likely to reassess their savings strategies or increase their contributions, according to the findings of a working paper by the National Bureau of Economic Research.

The results suggest employers can have an impact on employee retirement beyond simply offering savings plans such as 401(k)s and 457s.

Even though companies leave retirement savings plans to outside vendors like Prudential Financial Inc. and the Vanguard Group, it is important for employers to encourage workers to periodically reassess their retirement security, says Robert Clark, a professor of economics and management at North Carolina State University and one of the study's authors.

"Encouraging workers to be prepared for retirement is certainly in a company's interest," says Mr. Clark. "An employer obviously wants satisfied workers as well as satisfied retirees."

As private employers have shifted away from traditional pensions, Americans are less prepared for retirement. Financial experts advise individuals to save eight to 11 times their annual incomes to maintain their standard of living in retirement, but the average working household has virtually no retirement savings, according to the nonprofit National Institute on Retirement Security.

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The median retirement account balance for all working-age households is $3,000; for near-retirement households, it is $12,000.

The experiment, conducted in 2014, involved a sample of 14,710 active workers 50 through 69 years old, a demographic seen as set in its ways and harder to nudge, the paper says. Some messages emphasized the benefits older workers derive from increased retirement savings. Others pointed out that income from social security and employer pensions may not cover unanticipated health conditions.

Results showed workers who received the emails were more likely to change their contributions, increasing them at a rate of 2.8% in the short-term compared with 1.8% for the control group.

The research builds on earlier studies showing that nudges can change people's behavior, such as helping patients manage chronic diseases.

Reaching out to employees around career milestones like a big raise or a promotion is an easy, low-cost way to help workers prepare for the future, Mr. Clark said.

(END) Dow Jones Newswires

August 29, 2017 08:14 ET (12:14 GMT)