Employers are taking a more engaging and firm approach to making sure employees take retirement saving seriously, making use of automatic enrollment and escalation, as well as personalized tools. And both employers and retirement plan providers are noting changes in the savings attitudes of employees.
In a year-long period that ended in June, Bank of America Merrill Lynch reported the number of 401(k) plans combining auto enrollment and auto increases grew by 19% over the prior year, with 213 of its plans now using these features in tandem.
Data from the Plan Sponsor Council of Americas 56th annual survey of 401(k) and profit sharing plans, meanwhile, show that 47.2% of plans have an automatic enrollment feature, with 39.8% of those reporting they also automatically increase participants default deferral rates over time.
Kevin Crain, a senior relationship executive with Bank of America Merrill Lynch, says partnerships between 401(k) plan sponsors and providers are key to automatic enrollment success, and that companies are pushing harder to incorporate automatic increases as well.
Because auto enroll has worked, companies are being more aggressive, Crain says. Theyre auto enrolling people at a higher initial default [rate]. Instead of 3%, theyre starting at 4%, 5% or 6%, which maximizes the possibility of getting company matches. Also, companies are getting aggressive to put automatic increases right alongside. So [even] if they do nothing but sit there, theyre still going to be bumped along to probably get to a 9% or 10% saving level for themselves.
LSG Sky Chefs, a Texas-based provider of airline catering and management, has used auto enrollment features and has seen the participation rate in its 401(k) plan jump to 72% among eligible employees.
The only pushback weve gotten is from employees wanting to get into the plan before the 30-day mark, says Melanie Swenson, senior HR specialist, retirement plans and communication. They see it as one less thing to worry about, she adds. They dont have to remember to go back and sign up.
Kathryn Baikie, director of total rewards at LSG Sky Chefs, adds that employees know up front about the auto enroll feature through the benefits-at-a-glance discussion during the interview process. Part of the recruiting package is showing what were offering them as far as retirement saving, she says.
Still, automatically enrolling employees isnt going to be the end-all tool for engaging workers in healthy retirement savings habits. As Crain points out, only about 50% of companies are embracing the technique, which means there are 50% that havent adopted auto enroll, he says.
I think the auto programs have proven to be the most effective, says Joe Ready, director of institutional retirement and trust with Wells Fargo. I think the auto programs allow you to create a program to get people in. If you can just get people started at a young age, its never too late. $1 today is going to serve them well tomorrow.
Another habit plan sponsors can impress on employees is the importance of a written plan, Ready says. I think when people hear written plan, they think about a long, detailed financial plan. A simple plan can be: How much do you have? Just start the journey, he says.
For Wells Fargo employer-clients, for example, retirement plan messages are integrated with Social Security information.
Every employee knows where they are on their savings amount. We say: Here is where you stand on your current rate with a retirement age of 65. This is what youre on track for. That really resonates, says Ready. Thats a form of a written plan. Its more about every time we interact, [telling them] where they are on their journey and, most importantly, what the next best step is to improve the outcome maybe invest in that, or add another 1% contribution.
Personalizing the enrollment experience really improves the chances employees will use retirement tools, Crain says. For example, you could say: Knowing your income, if you enroll at 3%, this [is what] will happen, he says. We find much higher rates of utilization [with that approach] rather than just a generic enrollment site.
We do have some companies that just dont want to auto enroll, so they just dont, he says, but they know they have participation issues.
Link to health care
A second, highly impactful way some companies have been getting employees signed up for 401(k) plans is tying enrollment in with annual health care enrollment, Crain notes.
No one blows that off. No matter how you get them to do it, theyre going to [enroll in health care], he says. So broaden health care enrollment, he advises. Make it a time for both physical and financial wellness.
Employers can double or triple their plan participation rates by using this approach, Crain says.
Employees are making a big decision and, again, were making it easy for the employee at that point to enroll, he says.
A recent Wells Fargo analysis pointed to some disheartening figures for middle class savings. Saving for retirement is a formidable challenge for middleclass Americans with 34% not contributing anything to a 401(k), an IRA or other retirement savings vehicle, according to the fifth annual Wells Fargo Middle Class Retirement study.
When you see one-third of the middle class isnt saving in a traditional vehicle, its concerning, says Ready. One-fifth have saved $0, literally nothing.
Ready says its easy for employees to get stuck in a Ill save later to make up what I didnt save today mindset.
Saving for retirement isnt easy, he says. It requires sacrifice and its not something people can push off and hope to achieve later in life. If people in their 20s, 30s or 40s arent saving today, they are losing the benefit of time compounding the value of their money. That growth cant be made up later, so people have to commit early in life to make savings a regular discipline year after year it is the only way most people will achieve their financial goals to carry them through retirement.
Still, there is a silver lining, Bank of Americas Crain says. Some interesting observations were seeing millennials are better savers, he says, thanks in part to the automatic enrollment and escalation features provided by their employers. Millennials are doing a decent job at saving money in retirement plans and sticking with it, says Crain.
However, they still need help with investing, he says. Theyre still not trusting, given the decade or so that theyve had with rough financial markets and financial institutions. Employers of millennials can use target-date funds and managed account advice programs to help smooth that hurdle, he says.
LSG Sky Chefs uses an investment advisory service and Swenson says the program is popular.
The feedback Ive heard, when we explain it or after theyve gone to the site is: Its so easy and personalized. Its tailored specifically to them with their individual information and their goals, Swenson says. They feel more confident in planning for their own retirement. They feel theyre on more solid ground.
With intuitive plan design strategies, companies are making access to financial benefit plans and decision-making about enrollment and contribution rates easier, and helping employees achieve better outcomes through personalized education and advice, says Steve Ulian, head of institutional business development for Bank of America Merrill Lynch. By further integrating how employees save for retirement and long-term health care costs, employers can help people see a more complete picture of their financial wellness.
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