• Employment by state and local governments remains well below pre-pandemic levels, and many government workers have chosen to retire early.¹
• About half of government participants utilize professionally managed solutions.
• On average, female government participants are saving 15% less than men.

GREENWOOD VILLAGE, COLO. May 5, 2022 – The pandemic and economic uncertainty has created challenges for state and local government employees who say saving for retirement is a top financial priority for 2022.

Government employees saving in Empower’s workplace retirement plans steadily increased savings rates during the pandemic compared to two years ago and more government employees contributed to those plans.  An analysis of the savings behavior of 1.55 million active state and local defined contribution (DC) participants with Empower as the recordkeeper provides a comprehensive view of state and local government employees’ DC savings behavior and retirement preparedness. The analysis also shows the value of how a DC plan can fill retirement income gaps.²

Most public sector workers are primarily covered by defined benefit (DB) plans, with DC plans taking on the role of supplemental retirement plans for this segment. Fiscal challenges have forced many state and local governments to reduce pension plan benefits and payouts, and many public sector workers are not covered by Social Security. These factors unveil the importance of DC plans in closing retirement income gaps. However, research has found that public sector employees may need help optimizing their DC plan participation and engagement to improve their retirement readiness.³

“Government workers are the backbone of our communities and our country,” said Dan Morrison, senior vice president government market. “It’s critical that both state and local government workers understand their future expected retirement income as their pension plans may not fully meet their needs in retirement. This will help them begin to plan appropriately and to fill any gaps along the way.”

The Empower analysis Empowering America’s Financial Journey^TM, explores how this segment of American workers are:

• Remaining resilient during the pandemic and uncertain economic conditions. They are saving an average of 6.4% of their salary in their workplace retirement plan, up from 5.9% two years ago.
• Utilizing professional management and when offered, four in 10 government participants utilize a Target Date Fund (TDF), with usage levels steadily declining across generations. Overall, 1 in 6 government participants utilize managed accounts. Compared to TDF users, participants using managed accounts have higher engagement, savings and usage rates for advisory services provided through Empower’s Advised Assets Group (AAG). ³
• Improving outcomes when engaging with their retirement planning. Engaged participants are savings at almost twice the rate of unengaged participants (8.2% vs.4.2%). Savings rates climb even higher to 9.9% for participants engaging with Empower’s AAG-registered investment adviser representatives. ⁴
• Reaching age 50, and this is serving as a psychological trigger regarding retirement savings. Average saving rates increase for all participants, but they are significantly more pronounced for engaged participants.  Several factors can help explain this, including the proximity to retirement, eligibility for catch-up contributions or an increase in disposable income due to the life stage.
• Saving less. Female government participants are saving 15% less than men (6.0% vs. 6.9%). The difference in gender saving rates is narrower in the corporate DC market (8% vs. 8.5%) and women outpace men’s saving rates at income levels greater than $60,000 in for profit plans.

“Even with competing priorities, government employees have steadily increased their savings during the pandemic. They have ranked saving for retirement as a top priority, and we are seeing that engaged participants are saving significantly more than unengaged participants,” said Claudia Step, senior vice president and chief customer experience officer.

Empower is the nation’s second-largest retirement plan recordkeeper by total participants.⁵ Through this study, Empower aimed to gain a deeper understanding how participants behave and what drives that behavior and, as a result, what insights and learnings can help American workers on their journey to a secure retirement.

“We encourage all workers to get on the right track early; however, it’s never too late to begin saving. This is especially important for the new workforce of Gen Zers who have time on their side and can benefit from higher engagement and savings rates,” said Luis Fleites, director of Thought Leadership at Empower.

Click here to read the entire study, Empowering America’s Financial Journey.^TM

About Empower

Headquartered in metro Denver, Empower administers approximately $1.4 trillion in assets for more than 17 million retirement plan participants and is the nation’s second-largest retirement plan recordkeeper by total participants.⁶ Empower serves all segments of the employer-sponsored retirement plan market: government 457 plans; small, mid-size and large corporate 401(k) clients; nonprofit 403 (b) entities; private-label recordkeeping clients; and IRA customers. Personal Capital, a subsidiary of Empower, is an industry-leading hybrid wealth manager. For more information please visit empower.com and connect with us on Facebook, Twitter, LinkedIn and Instagram.