One trend affecting the popularity of employee retirement plans is the tight U.S. labor market. According to the Bureau of Labor Statistics, the unemployment rate stands at 3.7 percent as of November 2023, with no change from the prior month. Overall, unemployment continues to hover near the lowest level in over 50 years. As a result, many industries have faced severe labor shortages.
Here are some other factors that we expect to impact employee retirement this year.
- Employee retention: While offering employee retirement plans is an effective way to stand out in a competitive labor market, many small business owners don’t think they can afford to offer one. They aren’t saving for their own retirement, let alone their employees’ retirement. Data shows they would be wise to do so, as 40 percent of employees are less likely to leave their company in the first year when offered a retirement plan option.
- ESG: As a way to boost employee engagement in retirement planning, we expect environmental, social and governance (ESG) options to become more common in 401k plans. Although the idea of including ESG options in 401k plans remains somewhat controversial, the trend seems unlikely to disappear, especially among younger workers.
- Interest rates: Another trend that could affect employee retirement accounts is rising interest rates. Government bonds, certificates of deposit and other ultrasafe instruments now offer interest rates exceeding 5 percent. Savers have recently expressed renewed interest in bonds, so employers should ensure that their retirement plans offer easy ways to invest in fixed-income securities.
- Aging workforce: The future of retirement is also affected by the aging workforce. The average U.S. retirement age is increasing as workers stay in their jobs longer than previous generations. This is partly because two-thirds of Americans have nothing saved for retirement, underscoring the need for more employer-provided financial education programs.