Data & Research June 21, 2024

By the Numbers: Participant Retirement Saving Strategies & Outcomes

The final PLANADVISER In-Depth installment for this quarter reveals the saving outcomes for participants depending on their strategies.

Reported by
Art by Kiki Ljung
By the Numbers: Participant Retirement Saving Strategies & Outcomes

In a recent Capital Group survey of defined contribution plan consultants, nine out of 10 said they recommend auto enrollment for plans and 86% encourage auto-escalation to get participants to save.

But participants, of course, also play a role in shaping their saving outcomes. To get a sense of how automation in plan design and participant decisions interact, PLANADVISER dug into some of sister publication PLANSPONSOR’s 2023 participant survey data, which drew on 971 full-and-part-time employees who participate in an employer-sponsored DC plan.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

In the first scenario below, the data team considered retirement saving strategies alongside results as measured by how much participants defer as a percent of income. Each row identifies how a participant got to a place of saving less than 2%, or 2% to 3%, and so on up to more than 12%.

Amid the results are three areas that stand out:

  • Default rates and employer matching continue to have a large influence on how people save in retirement plans. Most of the respondents used these strategies to set their saving decisions.
  • The higher the default or match potential, the more people will save. That is shown by the top two rows, which have the highest percentages across the board—but also show the strongest saving rate potential.
  • The data also shows that people who are focused on saving the maximum amount, along with those who set a targeted level of savings, have a better chance of saving more than those using other strategies. For instance, the best chance of saving more than 12% among participants comes from those saving as much as possible by law. That requires, of course, that they’re making enough or have enough to save at those rates.

Participant Retirement Saving Strategy & Results

<2% 2% – 3% 3.1% – 5% 5.1% – 7% 7.1% – 10% 10.1% – 12% >12%
Took default/recommended savings rate at enrollment 55.0% 42.8% 34.4% 24.9% 24.6% 25.3% 16.1%
Saved enough to receive maximum employer contribution/match 18.3% 21.7% 35.7% 43.4% 26.0% 25.3% 16.1%
Saved maximum amount allowable by law 5.0% 7.2% 8.0% 13.2% 14.9% 20.7% 41.9%
Based amount on a targeted level of savings 3.3% 7.8% 9.8% 12.2% 16.7% 16.1% 12.9%
Followed guidance of spouse/friend/colleague/adviser 1.7% 2.8% 4.9% 3.9% 2.6% 4.6% 9.7%
Started contributing at lower percentage, but rate automatically increased to current level 5.0% 6.7% 4.5% 1.0% 3.5% 6.9% 3.2%
Don’t know / Unsure 11.7% 11.1% 2.7% 1.5% 1.8% 1.1% 0.0%

Our second set of data considers how to best reach these participants to relay the details of their plan.

This data shows the preferred method of communication as compared to how much people defer into their workplace savings account.

A few standout statistics include:

  • The need for one-on-one financial coaching and advice is not being oversold by the retirement plan industry: Meeting with an adviser for 30 minutes has the strongest interest from participants.
  • Short, printed brochures are surprisingly influential, though notably with those who are saving less. There certainly seems to be a need for continued off-line communication or perhaps more mobile solutions for people who may not be at a computer during the work day.
  • Finally, it’s interesting to note that interactive, online libraries are more popular for those saving at higher levels. 

Savings Rate by Preferred Method of Communication

<2% 2% – 3% 3.1% – 5% 5.1% – 7% 7.1% – 10% 10.1% – 12% >12%
Read short, printed brochure delivered to home by mail 28.3% 21.1% 18.3% 16.1% 17.5% 9.2% 17.7%
Participate in 90-minute, instructor-led group seminar 6.7% 12.2% 13.4% 12.2% 12.3% 13.8% 11.3%
Review periodic newsletter via email with links to information/actions 11.7% 11.7% 14.3% 10.7% 11.4% 12.6% 24.2%
Browse interactive, online library allowing for self-paced learning 18.3% 15.0% 12.5% 20.0% 15.8% 18.4% 9.7%
Meet one-on-one with a financial adviser for 30 minutes 30.0% 24.4% 29.9% 30.2% 34.2% 32.2% 25.8%
Listen to an informative 30-minute podcast 5.0% 15.6% 11.6% 10.7% 8.8% 13.8% 11.3%

The data above is drawn from PLANSPONSOR’s 10th annual Participant Survey performed in partnership with first-party data company Dynata and fielded by Qualtrics online survey platform, September 29 through October 12, 2023.

More on this topic:

Participant Data and the Race for Ownership
Financial Wellness Moves From “Nice to Have” to Table Stakes
Recordkeepers and Participants: An Evolving Relationship
Managing Assets Within the Plan
Compliance June 20, 2024

DOL Files Counter-Brief to Retirement Security Rule Challenge

The DOL counters an insurance industry lawsuit by arguing that the new rule is lawful, consistent with case law and will protect investors.

Reported by

The Department of Labor answered one of two open lawsuits in the federal courts challenging the Retirement Security Rule on June 14. The regulator’s first response in court argued that the new rule is compliant with existing case law and is substantially different from a 2016 regulation that was vacated by the U.S. 5th Circuit Court of Appeals.

The Retirement Security Rule, finalized in April, expands the definition of fiduciary such that a financial professional who holds themselves out as acting in their client’s best interest and providing advice that can be relied on is a fiduciary under the Employee Retirement Income Security Act. This remains the case even if the advice is applied on a one-time basis, as is often the case with retirement plan rollover recommendations, plan menu design and annuity sales.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The first lawsuit, led by the Federation of Americans for Consumer Choice, an insurance industry group, was brought before the U.S. District Court for the Eastern District of Texas on May 2 and is the lawsuit that the DOL filed a responsive brief in. The other suit, filed in the Northern District of Texas by the American Council of Life Insurers and other insurance trade groups is also open and was filed May 24.

The FACC complaint, which was filed alongside other independent insurance agents, argued that the current rule is much like the vacated version, covers the same professionals and the same transactions and on substance is all but the same as the 2016 fiduciary rule.

The DOL answered in its brief that “the Retirement Security Rule is far more modest in scope than the 2016 Rule vacated by the Fifth Circuit, and lacks the features that led to that rule’s vacatur.” The regulators argued, among other points, that:

  1. The new rule focuses on the relationship between the adviser and the investor and how the adviser presents themselves, rather than “every financial professional in every transaction will be deemed a fiduciary.”
  2. There are no contractual requirements in the new rule, and therefore no new private right of action created by exposing advisers to contract violation liability under state law.
  3. There are no limits on mandatory arbitration.

Further, the DOL argued that it is not limited to the original five-point test, first promulgated in 1975 and the predecessor the Retirement Security Rule and can continue to make rules consistent with ERISA. The regulator also noted that the text of ERISA does not say that professionals offering one-time advice cannot be fiduciaries.

In its complaint, the FACC had also argued that the rule would be damaging to annuity markets, which are currently booming due in part to higher interest rates.

In its response, the DOL wrote that: The plaintiffs’ “arguments are largely grounded in policy concerns about the insurance industry that cannot override the clear text of the statute passed by Congress. Contrary to Plaintiffs’ wishful thinking, ERISA does not inherently exclude investment advice about plan assets when insurance agents are involved. Instead, ERISA adopted a fiduciary standard focused on function.”

The brief expressed the concern, in defense of the rule, that in the absence of its implementation: “Insurance agents providing professionalized investment advice are free to hold themselves out as acting in their clients’ best interest while prioritizing lucrative commissions from sales of annuities and rollover recommendations that may involve a retiree’s life savings—so long as they are not on a monthly retainer nor providing recurring investment advice.”

The DOL pointed out that one plaintiff, ProVision Brokerage LLC, states on their website that it “is driven by making a difference in the financial health of people’s lives,” and “[t]he needs/goals/wants of those we serve are the only thing that matters; period.”

The brief then notes that “insurance professionals selling annuities can make these sorts of representations to retirement investors, but then make annuity recommendations regarding ERISA plan assets with no accountability to actually act in their clients’ best interest as ERISA requires.”

The lawsuit was brought by the FACC and independent insurance agents James Holloway, James Johnson, TX Titan Group LLC, ProVision Brokerage and Eric Couch versus the DOL and Julie Su in her role as acting secretary of labor.

 

«