Defined contribution (DC) retirement plan participants
strongly value their workplace retirement plan and would like to see their
employers do more to help them save because, looking back on their history of
saving, they regret not doing more to prepare for retirement. These were the
main findings of an American Century Investments survey of 1,504 full-time
workers conducted by Matthew Greenwald in the first quarter.
As of year-end 2015, 38.2% of 401(k) plans with automatic
enrollment have been deferring 3% of participants’ salaries—but 29.0% are
deferring 6%, T. Rowe Price found by analyzing its recordkeeping data.
Another 13.0% defer 4%, and 10.9% defer 5%. Just more than
half, 51%, of the plans T. Rowe Price administers use automatic enrollment, a
28% increase since 2011.
The American Century survey found that 70% of participants
think their company should automatically enroll them at a 6% deferral rate, and
75% said that, if given a choice between a salary increase and a comparable
company match, they would take the match. Eighty percent would prefer a 100%
company match on their first 3% contribution to their retirement plan rather
than a 3% salary increase.
Respondents said the first five years of their working lives
is the period of time for which they have the most regret, having put off
saving due to earning too little, having to pay off debts and incurring
unexpected expenses. Ninety percent said they would like to have told their
younger selves to save more; however, just 70% said they would have listened to
their future selves. Participants are also five times more likely to believe it
is worse to have too little money in retirement than to miss out on something
Eighty percent would like at least a “slight nudge” from
their employers to save for retirement. More than 50% think employers should
re-enroll participants, 70% would accept automatic escalation and 70% support
re-enrollment into target-date solutions.
More than 80% said having a retirement plan makes them feel
better about working for their employer, and 75% said that, if given a choice
between two employers—one with a retirement plan and the other without one—they
would select the employer with the retirement plan, even if the salary offering
was 5% higher at the company without a retirement plan.
“Plan participants told us that, without a doubt, they would
be in much worse shape without access to an employer-sponsored plan,” says
Diane Gallagher, vice president, practice management, at American Century.
“Nearly all express regrets about their personal savings habits, which says to
us that employers have the opportunity to structure plans that can help drive
more effective retirement preparations for their employees. Although plan
sponsors may be reluctant to put into place aggressive defaults or automatic
programs for fear of employee backlash, our research shows that participants
are actually in favor of these types of measures. In essence, employers have
the keys to the kingdom.”