FOR IMMEDIATE RELEASE
Lexington, KY, June 24, 2021—Americans’ retirement preparedness took a hit during the pandemic. Funds were withdrawn, accounts closed, contributions ceased or reduced, income lost, retirement delayed. As such, according to NAGDCA, now is the time for plan sponsors—whatever their participants’ level of retirement readiness—to stress the importance of retirement saving basics. NAGDCA is the premier professional association for plan administrators and services providers of government-sponsored defined contribution retirement plans. National Retirement Security Month is a NAGDCA-conceived focused effort to raise awareness of the need to adequately prepare for retirement that first received bipartisan Senate resolution in 2006.
“The level of financial impact wrought by the pandemic varies greatly across regions and industries, public and private sector. While some Americans have been able to continue to earn at pre-pandemic levels, improve their financial state, and save for retirement at increased levels, this has not been the case for many Americans,” said NAGDCA Executive Director Matt Petersen.
The results of a MagnifyMoney survey of 2,000 consumers—1,000 with retirement accounts—attest to the impact of the pandemic on retirement preparedness:
- 48% of respondents with a retirement savings account either ceased or decreased contributions.
- 16% ceased saving and have not yet resumed.
- 12% decreased the amount of contribution and have yet to increase it.
- 25% reported they’ll likely need to delay retirement; this amount jumps to 42% for those who lost income during the pandemic.
- 30% were behind in saving for retirement prior to the pandemic.
- 59% feel they’ll be unable to ever catch up to where they need to be.
NAGDCA urges plan sponsors to use this year’s National Retirement Security Month (October 2021) to help employees get back on track with their retirement savings and future financial security by reinforcing these important basics:
Avoid borrowing from your retirement account. Beyond failing to save for retirement in an employer-provided plan, taking money from a retirement account is what most jeopardizes retirement security. Borrowing disrupts long-term accumulation. Without contributing significantly more, the amount borrowed will never be fully restored as the potential for investment growth—including compound interest—is lost during the time the borrowed funds are missing.
Understand CARES Act provisions. For those coping with a pandemic-induced health, financial or child care issue, the 2020 CARES Act allowed distributions of up to $100,000 from retirement savings accounts and eliminated the standard 10% penalty, even for those younger than age 59-1/2. However, withdrawals are considered ordinary income for tax purposes. The Act allows taxes due on withdrawals to be repaid over three years. The taxes paid on the amount borrowed can be recouped with an amended tax return if the amount borrowed is repaid within the three-year window.
Replenish your retirement account as quickly as possible. Rapidly rebuilding a retirement savings account enables borrowers to restore the benefits of long-term investment growth and eliminate attendant tax bills. A surefire approach to consistent repayment is a paycheck deduction program.
Prioritize establishing an emergency fund—no matter participants’ income or financial standing. An emergency fund is a financial security net that decreases the need to borrow from a retirement savings plan to cover unanticipated expenses (job loss, illness, major home/auto repair) and, as such, helps protect long-term financial security. An emergency fund should typically have three to six months’ worth of expenses; post pandemic, some experts suggest saving up to a year’s worth of expenses.
- Use tax refunds and other windfalls to help build an emergency fund.
- Maintain an emergency fund in an easily-accessible, short-term savings account.
- Replenish the emergency fund to the recommended level after every use.
“As sponsors turn their attention to helping plan participants refocus on saving for retirement, it’s important to keep in mind that participants have various levels of awareness and understanding of retirement saving fundamentals. As such, it’s essential that plan sponsors meet participants ‘where they are,’ with attention and sensitivity to the use of language and context,” Matt concluded.
The National Association of Government Defined Contribution Administrators provides education, information, and training in all aspects of public plan administration to support members in creating plans that enable secure retirement outcomes for their participants. To encourage a grassroots movement for societal change around retirement, NAGDCA conceived and introduced National Retirement Security Week to Congress. Resolution for National Retirement Security Week was passed by the Senate in 2006 and continues with bipartisan support annually. National Retirement Security Week was expanded to National Security Month in 2020. To learn more about NAGDCA, visit https://www.nagdca.org/.
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Robin Schoen Public Relations