An employee pauses their retirement contributions. Should you intervene?

• Key insight: Discover how employers are becoming primary advisers on short-term versus retirement savings tradeoffs.
• What's at stake: Poor guidance risks long-term retirement shortfalls
• Expert quote: Gaston: Employees trust employers; benefit leaders should present options, not technical definitive answers.
  Source: Bullets generated by AI with editorial review

Big expenses that require employees to reroute their finances are a given, but the option to divert their retirement contributions should not be taken lightly. Benefit leaders can guide workers to an educated decision, and help them make a plan. 

According to a recent report from PNC, nearly 70% of employees are stressed about their finances and living paycheck-to-paycheck. More than a quarter said they look to their employer for help with long-term financial planning — double what it was two years ago. 

"Your employees trust you," says Kevin Gaston, head of strategic retirement consulting at digital savings platform Vestwell. "You don't have to be a fund expert or a legal expert; there are a lot of questions that don't fall into specific technical knowledge, but [are more along the lines of] 'I can't determine whether I should save for a truck, save for my kid's education or save for retirement.'"

Gaston stresses that it's not about having the right answer, but actively presenting employees with options to help them make a more informed decision. Providing information about financial benefits that are already offered, such as an emergency savings account (ESA), or free resources that help them budget and save are good ways to start. 

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Things to consider before hitting 'pause'

Before employees decide to divert retirement contributions, there are a few things benefit leaders can point out. First and foremost, where is the money going: Gaston notes that paying down high-interest-rate debt, such as from an unsecured credit card, may take financial priority. On the other hand, taking out a low-interest student loan for tuition instead of redirecting retirement savings might make more sense in the long run.      

"It's about the next-best dollar," he says. "You have to ask yourself, 'Will I look back on this and say it was the right move?'" 

If an employee does decide to temporarily stop saving, benefit leaders can make sure it's easy to start again. This is one reason auto-enrollment is extremely valuable, says Gaston. 

"If you've turned it off and then turn it back on, you're going to feel it; that's the challenge," he says. "If you're going to pause, you need to go in your calendar — a lot of 401(k) websites will let you pick when you're going to restart contributions — and pick that [date]. In other words, don't leave it to chance, hold yourself accountable."

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Helping employees avoid tough choices

Benefits such as ESAs and other savings options can help employees set aside money for emergencies or known upcoming expenses. Employees are 15 times more likely to use a workplace savings vehicle than an individual one, according to AARP. These benefits can be customized to educate as well as promote savings, Gaston explains. 

"You could simply say, all of our employees under this threshold, we're going to put $250 into an account for you every six months," he says. "That's $500 a year, and it's yours to tap into. But to tap into it, we're going to have some sort of education, such as a five-minute video about how to budget."

The key is starting with small adjustments that lead to better savings habits, such as enrolling employees in an ESA with automatic payroll deduction, Gaston says. Benefit leaders can also use salary increases as a time to recommend starting or upping savings contributions.

"You've got to find a way to engage them with a nibble," he says. "The best educational moment for a benefits practitioner is tagging things to when people get pay raises. The right time to engage is [when] something just happened and they have an opportunity to change their trajectory."

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By providing good advice and offerings with incentives such as an ESA, benefit leaders can set employees up for a better financial future, no matter what challenges come their way. 

"If you're looking to stabilize your workforce, you don't actually have to do much to get them on their feet, [and then] they look at that [resource] as their first reserve, instead of their retirement," he says.