Workforce Representation Will Soon Skew Younger

As Baby Boomers enter retirement at a rapid pace—the common statistic is that 10,000 of them retire a day—more and more of the workforce will inevitably be made up of Millennials and members of Generation Z. Because of this ongoing demographic swing, retirement industry professionals are already seeing a shift in benefits options and approaches to advice within workplace plans.

Studies by Pew Research show more than 3 million Baby Boomers retired last year. By the third quarter of 2020, about 28.6 million Baby Boomers—those born between 1946 and 1964—reported that they were out of the labor force due to retirement. At the same time, the data suggests Millennials could comprise as much as 75% of the global workforce within the decade, despite the outsized setbacks experienced by younger workers during the coronavirus pandemic.

“As more Baby Boomers retire, a larger percentage of the participants in these plans become Millennials, and even Gen Z, as they start entering the workforce,” says Jeff Mattonelli, a Gen Z and Millennial financial adviser at Van Leeuwen and Co. in Trenton, New Jersey. “With a younger population making up the largest percentage of the workforce, it’s requiring employers to think about those plans a bit differently.”

As Mattonelli explains, Millennials, the oldest of whom are now around 40, have been facing financial challenges for most of their careers. Many entered the workforce during the recession of 2008, only to survive yet another massive and unexpected economic downturn a little more than a decade later, this time caused by a pandemic. For many, retirement planning has always played second fiddle to addressing student debt and solving for shorter-term financial priorities.

Megan Gerhardt, a professor of management at the Farmer School of Business at Miami University in Oxford, Ohio, who studies how different generations shape workplace culture, says retirement-focused advisers should be asking themselves questions about how they can remain relevant for Millennials and Gen Z. She recommends plan advisers sit down with Millennials and Gen Zers alike to plan out a road map for their futures.

“What are their priorities now, or have they made any plans or savings actions?” she asks. “Are they thinking about retirement currently, or are they focused on paying down debt, saving in a rainy-day fund or earning enough to pay bills and other costs? Or maybe it’s a combination of all. Approach and ask them. Don’t assume that they define or think about the retirement timeline the same way that older generations did.”

“A retirement plan offered through an employer may be their first experience with investing or saving for some long-term goal,” Mattonelli points out. “It’s really important that there is sufficient education that is provided in a simple and concise way. The education should clearly spell out what benefits there are to participating in a plan like this.”

For example, explaining the benefit of compound interest over a long period of time can be extremely powerful. So can a demonstration of how adding merely a $100 contribution from every paycheck can build up significant wealth over time. Offering a pros and cons list for workplace plans and informing workers about pre-tax contributions, withdrawal limits and matching rates builds their knowledge and potential interest in participating, Mattonelli adds.

Mattonelli also highly recommends employers add a matching contribution if they are financially able to and have not already done so.

“Employers who offer a match tend to see a much higher participation rate,” he says. “Employees want to take advantage of any match their employer is making, so offering those features and highlighting them is an important way to encourage those younger participants.”

Outside of traditional retirement benefits, advisers can encourage employers to consider a student debt repayment or student debt refinancing program. With potential changes in the regulatory landscape, employers can also explore the option of creating a 401(k) match that is linked to student loan repayment. Millennials and Gen Z are among those with the highest personal student loan debt, and they often identify the reduction of this debt as a key priority as they enter the workforce, Mattonelli says.

“That’s a great way to increase engagement and it also allows these participants and employees to not have to choose between paying off the debt or participating in savings for their retirement,” he adds.

Finally, Mattonelli encourages employers and advisers to think about technological developments and whether offering mobile apps or digital engagement platforms would increase participation.

“Giving participants the ability to enroll through a mobile app and being able to view account information and other financial wellness tools that are associated with the plan is important and will encourage participation from a younger employee base,” he said. “Integrating those features into the plan will be another vital area for employers and plan sponsors to really achieve greater participation from their younger employees.”