Millions of American workers don't feel they're on the right financial trajectory after several years of economic volatility driven by shocks like the COVID-19 pandemic and high inflation. One of the clearest manifestations of this problem is the retirement savings gap — far too many Americans aren’t setting enough money aside for retirement, and even older workers are worried that they haven’t made sufficient contributions to their retirement accounts. This problem has been exacerbated by the economic shocks of the past few years.
 

The government recognizes the extent of this problem, which is why Congress passed the SECURE 2.0 Act in 2022 — a bill that makes it easier for employees to contribute to their retirement savings, build emergency funds, and pay down debt. Human resources (HR) teams must ensure that employees know the core provisions of SECURE 2.0 and their options for growing their retirement accounts.

For example, employees can convert the value of unused PTO into retirement contributions. This approach allows them to take full advantage of their benefits while building a more secure financial future.

Millions of employees struggle to save enough for retirement and prepare for potential financial emergencies, and HR teams are responsible for getting them on firmer financial footing. The SECURE 2.0 Act provides employees with a wider range of retirement options than ever before, and it’s important to communicate this fact while providing the tools employees need to grow their savings.

Employees Are Falling Behind on Their Retirement

There’s a significant retirement savings gap among employees in the United States. According to a recent Bankrate survey, 57 percent of American workers say they’re behind on retirement savings, including 35 percent who claim to be significantly behind. This even applies to older workers retiring in just a few years or have already been forced to postpone retirement. A 2024 CNBC survey found that 37 percent of Baby Boomers still feel behind, and Prudential reports that 55-year-old Americans have less than $50,000 in median retirement savings.

The retirement gap can significantly strain employees, especially older workforce members who are stressed about falling behind. Fifty-three percent of 55-year-olds who don’t feel financially secure report that they struggle with mental health issues — a proportion that falls to one-third for those who say the opposite. There are many reasons employees fail to save enough for retirement, such as large debt loads or starting too late — and for many, the past few years haven’t helped.

As inflation surged after the COVID-19 pandemic, many employees were forced to take drastic measures to stay afloat. For example, Vanguard reports that early 401(k) withdrawals (often referred to as “hardship” withdrawals) spiked from 2.8 percent in 2022 to 3.6 percent in 2023. When employees are prematurely mortgaging their futures by dipping into their retirement accounts, HR teams must step in and provide the education and financial support they need.

Supporting Employees Under Financial Strain

The retirement gap reflects more immediate financial issues that many employees face. Most Americans say they don’t have enough savings to pay for a $1,000 emergency. In contrast, a quarter have no emergency savings, and one-third have more credit card debt than savings. Americans now have $17.8 trillion in household debt (including $1.14 trillion in credit card debt), and credit card delinquency rates are higher than the historical average. Millions of Americans are so stretched financially that they take out predatory payday loans, which have annual interest rates that can surpass 600 percent.

With financial problems as deep and persistent as these, it’s no wonder that saving for retirement isn’t at the top of many employees' minds. However, employees need to understand that they’re stealing from their futures when they fail to save and invest — or even worse, pull money out of their retirement accounts — in the name of meeting short-term financial needs. One of the main reasons for the SECURE 2.0 Act is that it’s necessary to lower the barriers to retirement savings, which can be done through employers.

The Act automatically enrolls employees in their companies’ 401(k) or 403(b) plans, streamlines retirement account portability when they change jobs, enables companies to match student loan payments with retirement contributions, rolls 529 plans into Roth IRAs, and provides pension-linked emergency savings accounts. Employees may contribute up to $2,500 per year to these accounts, which they can draw from tax and penalty-free but are rolled into retirement accounts upon separation. These are just a few advantages employees should be aware of as they attempt to balance retirement savings with other financial responsibilities.

Giving Employees Greater Flexibility

One of the essential functions of the SECURE 2.0 Act is giving employees greater flexibility in how they save for retirement while addressing other financial priorities. This will not only help employees grow their savings and avoid financial mistakes like early retirement withdrawals but also meet one of their main workplace demands. According to a recent Metlife survey, 70 percent of employees say they’re interested in customizable benefits—a reflection of the growing demand for flexibility from employers across the board.

This demand is particularly relevant regarding PTO — one of the most widely underused benefits available to employees, 78 percent of whom report not using all their time off. HR teams can address this issue with flexible policies like convertible PTO, which allows employees to allocate the value of their unused time off toward other financial priorities like retirement contributions. Now that the SECURE 2.0 Act has made saving for retirement more accessible and flexible, programs like convertible PTO are more effective than ever. Even part-time workers now have greater eligibility for employer-sponsored retirement plans, and they can also take advantage of these plans through convertible PTO.

HR teams must inform employees about all these options to ensure they’re making financial decisions they won’t regret later. The HR teams that prioritize their employees’ long-term financial well-being will earn greater engagement, retention, and productivity.

Author Bio

Steve Armstrong is the VP of Operations and Finance at BNFT.

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