DC Plan Participants Want More Encouragement From Employers To Boost Savings
While employers are largely supportive of workers’ efforts to save for retirement, defined contribution plan participants are looking for additional guidance from sponsors to help improve their savings habits.
In a recent study, participants aged 25-54 and pre-retirees between 55-65 acknowledged that they could and should save more for retirement, and said they understood the consequences of not doing so. Moreover, they said “life gets in the way” of their goals, citing inadequate earnings, debt and expenses related to children, dining out and vacations as primary obstacles to saving.
The study showed that participants recognize they aren’t doing enough on their own to put aside necessary savings for their post-working years. However, they revealed they would happily comply if their employers established specific savings requirements.
Interestingly, a majority of employers adopt a “hands-off” approach when it comes to providing particular parameters for savings. According to the study, participants want sponsors to implement clearly established guidelines and helpful plan provisions such as automatic enrollment and default contribution rates.
Participants and Sponsors: Disparate Viewpoints
Participants said they value their employer-sponsored defined contribution plan as a vehicle to help them prepare for the future. However, they graded employers a B- when it comes to providing a retirement plan that meets their savings, investing and accumulation needs. Plan sponsors gave themselves higher marks: one-fifth graded their efforts an A, and another 63% gave themselves a B.
If they received additional encouragement from their employer, participants said they would save more. Less than two-fifths of 55- to 65-year-olds and roughly one-third of 25- to 54-year-olds believe their companies have done everything they could to support their retirement savings efforts. What’s more, participants look to their employers to offer motivation to help boost their savings. Two in five would like “a slight nudge,” while an additional two in five prefer either “a strong nudge” or a “kick in the pants.” Only one in six said they’d like their employer to “leave [them] alone.” Conversely, plan sponsors believe just one-quarter of participants prefer more than a slight nudge, and three in 10 want to be left alone.
Default Features Can Positively Impact Savings
Provisions such as automatic enrollment and higher default contributions can positively impact savings rates. More than six in 10 participants agree their company should offer 6% automatic enrollment, and four in 10 believe plans offering this feature would significantly impact savings. Furthermore, annual automatic increases also garnered favor, with seven 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.
View the study, from American Century Investments.