DC Plan Participants Want More Support to Save
It’s a simple yet troubling reality: Most Americans are not financially prepared for retirement. What further intensifies that challenge for individuals is that retirement is only one of numerous priorities competing for their attention in their immense financial picture. A recent study conducted by American Century Investments shows that DC plan participants are looking for additional advice and direction from their employers to help boost their savings.
In this study, participants aged 25-65 acknowledged that while they could and should save more for retirement, “life got in the way”. Whether it be debt, inadequate earnings, or expenses related to children, there are certainly obstacles to saving. Interestingly, this study also revealed that these same participants would happily comply if their employers established specific savings requirements or helpful plan provisions, such as automatic enrollment and defined contribution rates. Despite this fact, a majority of employers still adopt a “hands-off” approach when it comes to establishing savings parameters.
Contrasting View Points
While participants stated that they valued their employer-sponsored contribution plans as a means to prepare for their future, they graded employers a disappointing “B-”when it came to whether their retirement plan met their specific savings and accumulation needs. Additionally, 2 in 5 of the participants said that they would like “a slight nudge” from their employers, while an additional 2 in 5 prefer either “a strong nudge” or even a “kick in the pants.”
Plan sponsors saw things a little differently, giving themselves higher marks for their efforts. In fact, 1/5 of plan sponsors gave themselves an A! Conversely, plan sponsors believe just one-quarter of participants prefer more than “a slight nudge”.
All that to say, while participants are looking to their employers for encouragement to boost their savings, employers are under the impression that they are doing enough already.
Increasing the Employer Role
How can employers address this savings gap?
Provisions such as automatic enrollment and higher default contributions can positively impact savings rates. 6 in 10 participants agreed that their employer should offer 6% automatic enrollment, and 4 in 10 believe that if plans offered this feature, it would significantly impact their savings. Furthermore, annual automatic increases also garnered favor, with 7 in 10 participants indicating they’d be receptive to increases of 1%. Participants are also encouraged by offerings such as illustrations that show the income their savings can produce, annual reviews, retirement accumulation projections, and projection calculators.
Additionally, this effort could include communication from senior management identifying desirable retirement savings levels, making meeting space available for retirement planning sessions and giving employees time to attend meetings and webinars. This survey suggests that plan participants would welcome, rather than resent, encouragement from their employers and recommendations on how to save!
The study, from American Century Investments, is available online at http://tinyurl.com/AmericanCenturySurvey