Get staff to save early to ensure a secure future

Free money for retirement!

Who doesn’t perk up at that? A lot of people, apparently. While most of us dream of a financially stable retirement, statistics show that many of us don’t actually follow through and take action on planning for one.More than one in four U.S. adults don’t save any portion of their household’s annual income for retirement, according to the 2017 Financial Literacy Survey conducted online by Harris Poll on behalf of the National Foundation for Credit Counseling (NFCC). The 2018 Retirement Savings Survey by GOBankingRates.com found that 42 percent of Americans have less than $10,000 saved.

Most Americans don't even have enough saved to cover a year's worth of expenses in retirement, according to the Bureau of Labor Statistics. If retirement lasts for 30 years and the average monthly benefit amount paid by the Social Security Administration is less than $1,400—it was $1,369 in June 2017—that means full retirement may not be possible for many.

Employers are not required to have retirement plans and can limit coverage to certain classes of workers.

However, 65 percent of AAHA-accredited practices do offer a retirement plan to employees. Of those that offer plans, about two in five offer a SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account) along with a 401(k), according to “Compensation & Benefits,” published by AAHA in 2016. Half the practices surveyed offer a contribution match that averages 5 percent.

For employees eligible for such plans, some choose not to contribute much, if anything. For those with a company-match benefit – where the employer will match employee contributions up to a certain percentage – that means free money is left on the table.

That bewilders Emilie Brucato, hospital manager for Springtown Veterinary Hospital, an AAHA-accredited practice in San Marcos, Texas.

Brucato explained that Springtown offers full- and part-time employees a SIMPLE IRA for which the owner will match contributions up to 3 percent of gross pay. Yet of the six full-time and four part-time employees—most of them in their 20s and early 30s—only one other person besides Emilie has taken advantage of that benefit.

“The doctor and I will bring it up, especially with new employees. We give employees information and explain it really well: It’s pre-tax money. It goes into an account where they will make extra money beyond just a savings account. We even had the Edward Jones’ representative for our plan come in for a lunch-and-learn to explain the benefits,” said Brucato.

“Some employees express interest but just never get around to signing the paperwork. For others, it’s not even on their radar,” she said. “They don't realize they could put away as little as $10 from each paycheck.”

Brucato can understand . . . to a point.

Brucato says she used to be more of a spender. She liked to go shopping. But then, around age 25, something clicke and she started to live more frugally.

“It’s just how I live now. I’m a saver. I like to know that I will have money if something happens,” said Brucato who said she not only makes the most of Springtown’s SIMPLE IRA, she also has a Roth IRA and a traditional savings account.

Christen Skaer, DVM, owner of AAHA-accredited Skaer Veterinary Clinic in Wichita, Kansas, offers a 401(k) with a 3 percent match and profit-sharing. She has found, however, that many employees are not willing to contribute their own money, despite her hammering the point of contributing even $20 or $25.

“I just put close to $1000 dollars in their plans from profit-sharing for last year. Although they were thankful, it did not seem as meaningful to them as if the cash had gone into their pockets,” she explained. “I find that younger people don’t fully appreciate the value of long-term savings as people do when they get older.”

At AAHA-accredited Indian Hills Animal Clinic, which has two locations in Wichita, Kansas, the 20 full-time employees participate in the 401(k) and/or IRA plan, but some don’t put in the maximum to get the most out of the plan.

“Initially they seem to worry about the total deduction coming out of their paychecks, so they don’t withhold their maximum amount. Then I think it becomes out of sight, out of mind, and they don’t change it when we review it each year,” explained owner Sarah Neisius, DVM.

“Saving for retirement is a hard concept to get across: to live within one’s means, to invest now and live off their remaining paycheck. To employees, they see an additional $20–$50 come out of their paycheck, and that can be a lot of money for them.”

Neisius contributes a dollar-for-dollar match of the first 3 percent of the employee's elective salary and a 50 percent match of employee elective deferrals from 3 to 5 percent. To impress on her staff the value of a retirement plan, she focuses an annual team meeting on the 401(k), retirement and health insurance plans.

“The previous owner had always offered 401(k)s,” said Neisius. “I remember him having quite the internal debate as to whether to continue them in 2007 when the economy tanked, but he maintained [them.] When I purchased the clinics in 2014, I did so knowing that we were a successful clinic even with our 401(k) staff investments, so I wasn't going to look into changing them. However, we did change investment companies, and ‘the new guy’ suggested that we have a SIMPLE IRA option for our employees, so we did that.”

Cashing out early with penalties

What Neisius takes issue with is how many employees don't seem to truly grasp the importance of keeping their retirement plan going if and when they leave, even though they are made aware that the plan can be rolled over.

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What’s a rollover?

Instead of cashing out their retirement plans, people leaving their employer may want to consider a rollover to avoid tax penalties.

Most pre-retirement payments received from a retirement plan or IRA can be “rolled over” by directly transferring or depositing the payment into another retirement plan or IRA within 60 days.

With a rollover, the beneficiary generally does not pay tax on the money until it is withdrawn from the new plan. By being rolled over, the money is saved for the future and continues to grow tax-deferred.

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“I would say 90 percent of employees who have invested in our retirement benefit end up pulling their money out almost immediately if they leave our practice,” said Neisius. A few have contacted her four to six months out, telling her that finances were tight, and they needed the money. Only a couple have truly rolled it into a new opportunity.

Those who cash out incur hefty early withdrawal penalties and lose the long-term benefit they could have received if they had not taken the short-term action.

“Last year, we had a great employee who left to be a mom,” said Neisius. “She had invested in her 401(k) for the many years she was here. Shortly after, she withdrew all her money, and it broke my heart. It really did make me want to discontinue the benefit.

“It's very frustrating to invest so much money into my employees only to see them give so much to the government for early withdrawals. I firmly believe we're very generous, especially for a small business, and that can be a lot of money we could invest elsewhere in our practice.”

Neisius admitted that she has thought about discontinuing the benefit, but is not yet ready to change the offering.

Can’t afford not to save

When jobs such as receptionist, veterinary assistant, and credentialed veterinary technician pay $14.69 to $17.53 an hour, according to the 2016 Firstline Career Path Study, is it too much to ask people to save for their retirement?  

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Can’t seem to save for retirement? Consider these ideas:

• Start automatic deposit of a portion of your paycheck at your financial institution.
• Save any pay increase or at least a portion of it.
• Check your spending on those “forgotten” expenses such as drive-through coffees, daily snacks, or lunches out instead of brought from home.
• Love playing smartphone games? They may be free to download, but check to see how those in-app purchases are adding up instead of funding your savings account.
• Saving “only” a dollar a day? It adds up to $365 in a year, leaving you better off than when your savings was at 0.

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“That is a tough question to answer,” said Santo LoPorto, Vice President of Association Business, for AXA Equitable, AAHA’s preferred retirement plan provider since 1995. “Let me answer it with another question: In today’s uncertain climate, can you afford not to save for retirement?”

“Saving is possible for people at nearly every level of income, but the challenges are more significant for lower wage earners,” admitted Bruce McClary, NFCC Vice President of Communications. “In most cases, the reasons people give for not saving are the exact reasons they should have saved in the first place.

“When there is no savings to draw from, people often think of debt as an alternative without considering the burden they are creating for themselves, as they have to repay what they borrow,” he said. “Without addressing critical budget management issues, relying too heavily on debt as an alternative to savings will lead to a disastrous dead end.”

Interestingly, the inertia of some employees to do anything regarding their retirement savings could work to their benefit in some cases, according to a working paper from the National Bureau of Economic Research. In that study, a large U.S. corporation changed its 401(k) enrollment so that employees were automatically and immediately enrolled unless they took action to opt out.

According to that study, the switch to automatic enrollment dramatically changed employee savings behavior, with 401(k) participation significantly higher. A “substantial fraction of 401(k) participants” hired under that system exhibited “default” behavior: sticking to both the default contribution rate and the default fund allocation even though very few employees hired before automatic enrollment picked that particular outcome.

“Default” behavior appears to result both from participant inertia and from many taking the default as investment advice on the part of the company, implying motivation by the power of suggestion, the study said.

Get educated about the hows and whys

AXA Equitable, which manages custodial, advisory, and administrative duties to make it a turn-key solution, provides enrollment and review guides that “speak to the critical importance of saving for retirement, and starting early while you are young,” said LoPorto.

In the AXA Equitable plan, when a participant terminates employment, she receives an election of benefits package. It contains detailed explanations of the tax ramifications of taking a distribution directly as opposed to rolling it over to an IRA or another qualified retirement plan, he noted.

LoPorto suggested that simply word of mouth among employees—success stories from those who have built their retirement nest egg—may influence others who have procrastinated on whether to contribute to the plan.

Many do come to understand the benefit of saving for retirement. One former employee who keeps in touch with Skaer recently thanked her for encouraging team members to invest when she had worked there. While that employee only had $400 in her retirement account when she left, she told Skaer it is now up to several thousand dollars.

Tips for getting started

• Start small if you must, but get started. Employees can start to build a nest egg even while initially contributing at lower levels -- especially with the employer match. They then can increase their savings rate as their personal financial situation changes over time, suggested LoPorto.
• “Through education, participants at every income level can learn the importance of saving for retirement,” said LoPorto. For those with an AXA Equitable retirement plan, there is a Retirement Savings Education Center that participants can use to learn about and plan for their retirement.
• Practice owners can help connect people with programs and services that make the process of saving easier and more likely to succeed. That can have a long-lasting impact on their financial stability, explained McClary.
• Those unsure of what to do can begin by getting an understanding of their financial situation and creating a plan. Check advice from noncommercial sites such as “Saving and Investing” at the Securities and Exchange Commission or “Benefits of Saving Now” at the Internal Revenue Service.  
• Those who want more down-to-earth daily savings tips may want to search through the wealth of commercial blogs written by those who have found solutions to their financial problems.       
• Expose staff to a mix of data and real-world examples to demonstrate the long-term benefits of maximizing retirement savings contributions, said McClary. Get testimonials from those who now enjoy the benefits of having participated, especially in situations where an employer matches employee contributions.  

Maureen Blaney Flietner is an award-winning writer living in Wisconsin.