Principal Service Helps with Plan Design

“Americans aren’t saving enough for retirement, plain and simple. Often it’s due to inertia. That’s why we’ve designed retirement plans that harness the power of human nature instead of working against it,” says Jerry Patterson, senior vice president of retirement income strategy at The Principal, based in Des Moines, Iowa. “By implementing several automatic plan design changes, employers can elevate their retirement plan and make a significant impact on their employees’ participation and savings rates.”

To elevate the success of any retirement plan, The Principal suggests employers strive to get their work force participation up to 90% with a 10% average deferral rate, plus employer match. In order to reach these numbers, Principal PlanWorks includes several key automatic plan design features such as:

• Automatic enrollment with at least 6% elective deferral;
• Automatic escalation of at least 1% per year up to 10%;
• Sweeping all existing employees into the plan at least one time at the default deferral rate;
• Stretching the employer match by using a formula that motivates employees to defer at higher levels in order to get the full employer match; and
• Using asset allocation choice as the qualified default investment alternative (QDIA).

According to research from The Principal, automatic enrollment can propel participation as high as 91%. In addition, only 6% of participants proactively choose to automatically increase their deferral percentage each year, yet 88% of participants use this feature if they are required to opt out of it.

“The conversation is shifting from one of retirement savings to retirement income, but we must move faster if we want to get individuals on track towards meaningful retirement savings,” says Patterson. “We must start and end the retirement savings war with successful plan design, tools and education to achieve retirement readiness.”

The Principal Financial Group is a global investment management provider offering retirement services, insurance solutions and asset management.