Defined contribution (DC) plans continue to serve an increasingly important role in the retirement readiness of public sector employees. However, it is important to remember that public plan design and usage patterns often vary from those found in the private sector in several meaningful ways.
Many public employees lack confidence and knowledge about retirement saving
Median contributions and account balances for public DC plans are often lower than averages suggest, across all age groups of public employees.
Public employees with shorter tenure often contribute the least to their DC plans
These employees are also most likely to receive reduced DB benefits and may need to save more than longer-tenured colleagues. Yet, those who need to save the most are often contributing the least, highlighting a gap in retirement preparedness among newer public employees.
Financial strain from high debt, low emergency savings and plan loans can all negatively impact contributions and account balances
Financial health is inherently interconnected: Employees with new plan loans are more likely to have high credit card utilization, and employees with high credit utilization contribute less and have much lower balances, on average.
Only about 30% of public DC plan sponsors feel confident employees are saving enough or have appropriate asset allocations
Among this confident group, the majority offer a TDF, many of which serve as a qualified default investment alternative (QDIA). Analyze how employees are investing, not just how much, and reconfirm that TDFs and other QDIA offerings are well suited for your plan’s needs.
Public DC plan sponsors can help enhance outcomes by understanding plan demographics, integrating financial wellness programs and offering innovating retirement income solutions
Review important factors like salaries, ages, and the presence or changes in DB benefits to better communicate realistic contribution expectations.