Unsure About Employer-Sponsored Retirement Plan Selections? Experts Share Tips

Many workers avoid making their retirement plan selections simply because they’re scared of doing something “wrong.” Others never make any plan selections at all, if their employer doesn’t offer an automatic enrollment option.

As a result, nearly one-in-five workers eligible for a retirement plan through their employer aren’t enrolled in one, according to a recent report.

Experts say not being enrolled in an employer-sponsored plan is one of the worst financial planning moves a person can make. Luckily, there are a few rules of thumb to help individuals choose the right plan for their savings goals, retirement dreams, and current financial situation.

Understand What Your Company Is Offering

It sounds obvious to advise workers to understand their retirement plan offerings before making a selection, but it’s a critical first step. 

“To understand the provisions of your plan, ask a few questions. ‘Does your employer offer a matching contribution? Is there a vesting schedule? What are the investments available?’” said Jeff Clark, head of defined contribution research at Vanguard.

Knowing these things is important to making the most holistic decision regarding a saver’s goals and plans.

“If [employees] have questions, they should call their HR department or the financial provider of their employer-sponsored plan to gather more information and guidance based on their unique circumstances,” said Lindsay Theodore, thought leadership senior manager at T. Rowe Price. 

Choose A Plan That Aligns With Your Needs

A good way to start saving for retirement is to opt in if an employer offers a 401(k) or 403(b) account, said Kirsten Hunter Peterson, vice president of workplace thought leadership at Fidelity Investments.

“These plans come with many advantages, such as tax advantages and a chance to get a match or financial contribution from your employer,” she said.

Or, workers can opt for a Roth account, which allows them to make contributions after taxes, but is tax-free on earnings and withdrawals. Some employers let their employees do both, which can be a good way to diversify taxes come retirement time.

The best option depends on the individual’s current and future tax rates, so it might be helpful to speak with a financial advisor to help weigh those options.

Contribute As Much As You Can

If a company offers a match, that means it will contribute a certain amount of retirement savings based on what an employee contributes. Financial experts say it’s in the employee’s best interest to ensure they are contributing as much as they can. 

“For instance, if your employer offers a 4% match, try to save at least 4% so that you’re not leaving money on the table,” said Hunter Peterson.

Vanguard suggests saving 12% to 15% of your annual income, which includes contributions from both the employer and employee, while Fidelity suggests 15% for a “safe and secure retirement.”

Experts also suggest workers aim to increase contribution rates each year or each time their salary increases.

Opt For A Target-Date Fund

Theodore from T. Rowe Price recommends that if anyone is overwhelmed by investment options and unsure where to start, they consider a target-date fund.

TDFs allow investors to simplify retirement investing by automatically adjusting the mix of assets they have as their target retirement date approaches. This will keep assets diversified and manage some of the risk without too much work.

In 2024, 84% of retirement plan participants used TDFs.

The “right” retirement strategy, just like selections, truly depends on each individual person and scenario, said Vanguard’s Clark, which is part of what makes the decisions feel so overwhelming.