Mastering Retirement Benefits: Stay Ahead with Latest Best Practices
American households are facing a retirement savings crisis with an estimated $7.1 trillion retirement savings shortfall. Half of those households will not have enough to maintain their living standards in retirement. Saving more and working longer improves that outlook.
Employers can take concrete steps to help their employees avoid becoming part of that statistic with the following best practices endorsed by Congress in the SECURE 2.0 Act passed in December 2022:
Only half of eligible employees participate in an employer-sponsored retirement plan each year, according to the Bureau of Labor Statistics. Many experience inertia, indecisiveness, and confusion about the advantages of consistent and long-term retirement planning which can hinder their path to a comfortable retirement.
Employers can do their part by enrolling new employees in the RPB retirement plan during the on-boarding process—with contributions deducted from the employee's paycheck.
- Set a default employee contribution (elective deferral) rate of at least 3% - 5% and no more than 10% of the employee’s total compensation that starts with their first paycheck.
- By law, employees can opt-out of auto-enrollment as well as increase or decrease their deferral rate at any time. Multiple studies show that most employees do not opt out and appreciate employer encouragement.
- Also, it's important to consider your existing staff. If any of them are not yet enrolled in the RPB plan, you can apply the same approach. Implement the policy at the start of your new fiscal year coinciding with the usual raise period, to minimize the impact on their paycheck.
This is the most effective way for you to help your employees be prepared for retirement.
To ensure adequate retirement savings, it is not sufficient to auto-enroll employees at a default contribution rate. Consider implementing automatic increases in employee contribution rates at the start of the fiscal year by 1% until they are deferring 15% of their annual compensation (or the maximum limit set by the IRS) from their paycheck.
- By law, employees are allowed to opt out of auto-escalation each year using a form that you provide. Like auto-enrollment, studies show that most people do not opt out.
- Consider timing auto-escalation of contributions with pay raises when employees have extra money to put towards their retirement savings.
Pre-tax and Roth post-tax retirement plan contributions have different tax advantages. Since each employee's financial situation is unique, it is important that they have the flexibility to choose either or both contribution types based on their individual needs.
While the RPB plan offers both types of contributions, it is up to the employer to provide the option to your employees. All you need to do is:
- Provide your employees with RPB's explainer on pre-tax and Roth contributions so they can make the right choice.
- Use an elective deferral form to allow employees to specify their preferred contribution method (pre-tax and/or Roth post-tax) from their paycheck.
- Work with your payroll provider to initiate post-tax deductions for Roth contributions.
Roth Post-Tax Contribution
Made with before-tax dollars
Made with after-tax dollars
Withdrawals of contributions and earnings
Subject to Federal and some state taxes
Investment earnings not taxed
Employers have the option to help their employees reach the 15% recommended annual savings rate. If your organization can afford it, this is a highly-regarded benefit to help attract and retain employees. Employers decide:
- How much to contribute to their employees' retirement savings account.
- Whether to use matching, non-matching, or another scenario to determine your contribution rate.
- Whether or not to have a waiting period and/or minimum service requirements in order to receive an employer contribution.
In combination, these practices provide the best assurance that your employees will be able to achieve their retirement goals by saving as much as they can as early as they can. It is up to each employer to determine what is feasible for their organization to implement.
If you do nothing else, at least offer access to the RPB plan for all eligible employees so that they can contribute from their paycheck, regardless of whether an employer contribution will be made. Under RPB’s new guidelines, most full- and part-time employees are eligible to participate in the RPB plan. Go to rpb.org/eligibility to learn more. Then, easily enroll your employees through the MyRPB for Employers portal.
What are other URJ congregations doing?
In 2022, the National Association for Temple Administration and RPB conducted a survey to examine how congregations' retirement benefit policies for their non-contractual employees align with industry best practices.
Learn what your fellow URJ-affiliated congregations are doing. Read the Retirement Benefit Policies Report and watch the webinar below.
One of the main reasons many Americans reach retirement age with little or no savings is that too few workers are offered an opportunity to save for retirement through their employers. However, even for those employees who are offered a retirement plan at work, many do not participate.
Questions? Reach out to us if you need help or a thought partner. Contact our Employer Services team directly:
At a minimum, there is little or no barrier to let any employee defer money from their paycheck to save for their retirement as soon as they are eligible to do so.