The energy and utilities sectors are facing a
retirement challenge of extraordinary scale.
A significant portion of the workforce in both
industries is nearing retirement age and there is
a pressing need for stronger retirement solutions.
Granting access to secure, predictable retirement
benefits has become an increasingly effective
strategy for plan sponsors looking to improve
participant outcomes across the age spectrum.
Historically, defined benefit plans provided
workers in the energy and utilities sectors with
the assurance of lifetime income. In recent
decades, however, the transition to defined
contribution plans has dramatically shifted the
burden of retirement planning onto employees.
In industries like energy and utilities, where an
aging workforce is a key factor, this shift has
created new challenges.
A recent study sponsored by Nuveen, conducted
by Economist Impact, underscores the need for
a transformation in how retirement benefits are
structured and communicated to employees.
Below we examine some key takeaways for
plan sponsors.
Addressing retirement concerns in our most critical industries
McKinsey estimates that 400,000 employees
in the energy sector will retire within the next
decade, and the utilities sector is projected to
lose approximately 50% of its current workforce
to retirement over the same period. 1,2 These
workforce dynamics underscore the growing need
for effective retirement solutions that address
longevity risk.
In addition, the physically strenuous nature of
work in these sectors means that employees
may be especially concerned about ensuring
they have a stable income in retirement. The
survey by Economist Impact highlights this, with
38% of energy and utilities workers indicating
they would consider switching jobs for better
retirement benefits.
The role of lifetime income solutions
Lifetime income solutions, which convert a
portion of an employee’s retirement savings into
a guaranteed income stream, are ideally suited
to address these challenges.* Such solutions
mitigate the risks associated with outliving
retirement savings and ensure that retirees
have a stable income to rely on throughout their
retirement years.
For energy and utilities workers who may be
focused on securing predictable income streams
in retirement, the appeal of a guaranteed income
stream is obvious.* The integration of lifetime
income options within familiar retirement
vehicles, such as target-date funds, allows
workers to benefit from these solutions without
drastically altering their existing approach to
retirement savings.
The impact of the SECURE Acts
The passage of the SECURE Act of 2019 and
the SECURE 2.0 Act of 2022 has introduced
significant changes to the retirement landscape,
offering new opportunities for plan sponsors
to enhance their retirement offerings. These
legislative acts were designed to improve
access to retirement plans, encourage savings
and provide more flexibility in how retirement
funds can be used.
The legislation enables sponsors to introduce
lifetime income solutions and incorporate
annuities into 401(k) plans with confidence.
These changes, supported by continued bipartisan
efforts, have the potential to revitalize the notion
of retirement security for American workers. By
taking advantage of the new provisions of the
SECURE Acts, companies can better serve the
evolving needs of their workforce.
Promoting financial literacy is fundamental
Offering lifetime income solutions is only part of
the equation. Promoting financial literacy among
employees is equally important, particularly for
younger employees who will be making up a larger
share of the workforce in the coming years.
Economist Impact’s survey reveals that a
significant gap exists between generations in
terms of satisfaction and clarity around retirement
planning. While 92% of Gen X employees are
satisfied with their company’s retirement plan,
only 60% of Gen Z employees share the same
sentiment. Furthermore, just 58% of Gen Z
respondents feel they have enough clarity about
how much income they will receive in retirement,
compared to 86% of Gen X respondents.
This lack of clarity is an impediment to effective
retirement planning. Employees who do not fully
understand their retirement options are less likely
to take advantage of the benefits available to them.
If companies leverage advisors who can provide
targeted financial education and resources, they
can empower their employees to make more
informed decisions about their hard-earned
retirement savings.
Stronger retirement benefits improve employee retention
The survey data also highlights the critical role
that retirement benefits play in employee retention
in the energy and utilities sector. 55% of survey
respondents in the sector said that retirement
benefits are an important consideration when
choosing a new job, and 38% would consider
switching jobs for better retirement benefits alone.
For plan sponsors, this data points to a clear
opportunity. By enhancing retirement benefits and promoting financial literacy, companies can
not only address the specific challenges faced by
their workforce but also position themselves as
employers of choice in a competitive job market.
The path forward
As the energy and utilities sectors navigate the
challenges of an aging workforce, the need for
effective retirement solutions has never been
more important. By incorporating lifetime income
solutions and prioritizing financial literacy, plan
sponsors can help ensure that their employees
are prepared for retirement, providing them
with the security and confidence they need to
face the future.
With the support of innovative retirement
solutions from Nuveen, companies can take
meaningful steps toward securing the financial
futures of their employees and strengthening their
organizations and industries.