Employees Support Plan Design Features That Nudge Retirement Savings

Regret continues to be the prevailing sentiment that employees express about their retirement savings habits, according to a national survey conducted by American Century Investments.

Respondents point to the first five years of their working lives as the period of time for which they have the most regret. Common barriers to saving remained consistent with previous surveys and included not earning enough, having to pay off debts and incurring unexpected expenses. More than 90% said it would be “at least somewhat important to tell their younger selves to save more.” About 75% said their early-career self would be “somewhat or very likely” to listen to that advice.

Four out of 10 respondents credit their employer with playing a critical role in getting them to save for retirement. When offered the option of receiving either a 100% match on 3% of their retirement plan contributions or a 3% higher salary, 77% of pre-retirees chose the match over the higher salary; 75% of participants ages 25 to 54 would take the match. When asked the same question substituting 6% for 3%, 78% of pre-retirees and 69% of younger participants chose the match.

“The idea that employees would accept a higher match over higher salary may have implications for plan sponsors and their consultants in structuring compensation and benefit programs,” American Century Investments Vice President, Client Marketing, Diane Gallagher says. “It is certainly a perspective that is worth examining within a particular organization.”

Perhaps because the first five years of their working lives is the time period respondents have the most regret about saving for retirement, they find automatic retirement plan features important. Eight out of 10 employees want at least a “slight nudge” from their employers in helping to save and invest optimally for retirement. One out of 10 want “a kick in the pants” to encourage them to save more.

When asked if the company they worked for should offer automatic features, the vast majority agree. Seventy-five percent believe automatic enrollment at 6% is something their company should do. More than 60% feel automatic enrollment should be implemented retroactively. Eight in 10 show at least some interest in a regular, incremental automatic increase. The same number support plan investment re-enrollment into target-date solutions.

The fifth annual study includes responses from 1,500 full-time workers (grouped by ages 55 to 65 and 25 to 54) who currently participate in their employer’s retirement plan.