The Young and Restless

The bad news is that younger participants might be hesitant to save for retirement, but the good news is they are interested in receiving information about it. The retirement plan adviser is a key voice in helping the mobile group of employees often called “Millennials” or “Generation Y” to accumulate for the long term, but it might take creative communication strategies, or even plan design changes, to reach them.

“[Younger workers] pay attention to their money more often because they’ve seen their parents make mistakes,” says financial adviser Jason Chepenik, Managing Partner at Chepenik Financial in Winter Park, Florida. “I have more young people today that actually move their money around inside their 401(k) plan, and are more proactive—or at least ask questions.”

Who Are Gen Yers?

Generational research might be full of simplification and contradiction but, in order to serve the youngest members of the workforce, retirement plan advisers might start with recognizing some broad trends seen from the group. If you ask financial firms—which have an interest in understanding this group, hoping to capture their assets early—they say their research characterizes members of Generation Y (according to the Bureau of Labor Statistics, those born between 1977 and 1995) as conservative, socially responsible, and conscientious investors.

The newest generation in the workforce is the antithesis of the foregone American worker who keeps the same job for decades and retires with a pension. When it comes to their attitude about workplace benefits, Millennials view a benefits package as a large consideration when looking for a job, notes Joanne Sujansky, author of the book Keeping the Millennials: Why Companies Are Losing Billions in Turnover to This Generation—and What To Do about It.

However, despite their appreciation of benefits, Millennials are not afraid to switch jobs or even “jump off the corporate train” and start their own business, Sujansky says. That mobility can pose a challenge for the retirement industry to keep that group steadily accumulating savings.

It might seem incongruous to their skepticism of corporate life, but Millennials also trust authority and welcome paternalistic trends to save for retirement. While they might not stay in jobs for much more than a year, when they are there, research shows they trust their employer, and are interested in having their employer play an active role in benefits and retirement savings.

Prudential Retirement’s research in 2006 found 66% of younger workers viewed automatic enrollment positively. If the employer says it is the right thing to do, younger workers are less likely to challenge the design, which is a good thing for advisers to note when consulting with sponsors about plan design, says Michelle Morey, Vice President, Communication Solutions, at Prudential Retirement.

Combine the aforementioned traits of younger workers—socially aware, risk-averse, and trusting of authority—with the economic environment, and a desire to avoid the market might come naturally, notes Morey. That makes getting out in front of them with the message about the value of long-term saving, while also respecting and buffering their risk-aversion, more important. The good news is, they are more likely to listen than other generations, Morey adds.

Why Does It Matter?

It is important to remember that, although there has been all of this focus on Baby Boomers, the Millennials have 100 million people, and will be in the workforce for quite some time, says Deanna Garen, Managing Director of Participant Solutions at New York Life Retirement Plan Services.

Some of the barriers to accumulation cited often by the retirement plan industry are already evident among Yers: They aren’t saving enough; they cash out when they switch jobs—and they switch jobs a lot; and they are concerned more with short-term savings than long-term savings.

A Fidelity survey released last year found that retirement is a priority or goal for 44% of Generation Y—but they are too bogged down to save for it, and it is ranked low on their list of financial priorities. While Generation Y, like Generation X, is reliant on workplace DC plans for long-term savings, 40% of members of Generations X and Y,  who have changed jobs at least once and had funds in their DC plans, cashed out, according to Fidelity.

The Cash-Out Dilemma

New York Life’s Garen, like others, sees the cash-out rate of young participants as the largest concern for their retirement savings, suggesting that it is an industrywide problem—and not one with an immediately obvious answer. “Advisers really need to think about how they can help plan sponsors understand that you want to do everything you can to help those participants for the time they are with [the employer],” she says.

The cashout rate is a scary statistic, notes financial adviser Tom Ruggie, President and Founder of Ruggie Wealth Management and 401(k) Generation in Tavares, Florida. “From an educational standpoint, it really needs to be engrained in their head that ‘this is not money you can tap into,’” he says.

Reaching this transient demographic comes down to looking at not only educational strategy, but also plan design. For instance, Tom Makeever, National Sales Manager at Access Control Advantage, a 401(k) loan provider, says it will be important to work on ways to make 401(k)s more portable and flexible to make participation more desirable to younger workers. However, education might be a strategy advisers can implement immediately. John Drahzal, Managing Director of Sales and Marketing at Access Control Advantage, says that, short of changing the whole industry structurally, “the only tools we have in our toolbox are educational tools.” In order to make education effective, it requires speaking to the demographic in a relevant way, such as using appropriate technology, he says.

Garen and others agree that targeting generations (and other employee groups)—nothing new to educational strategy—is key to making sure that education is relevant (see “Zooming In,” PLANADVISER, May-June). “We definitely encourage plan sponsors and advisers to realize that every participant is different and people have similarities in age groups or in their lives,” Garen says.

For instance, the concept of retirement needs to be packaged within relevant life-stage communication, says Danelle Kronmiller, Assistant Director of Participant Marketing at Principal Financial. Principal uses the word “future” to talk to the younger generation, and presents goals such as getting rid of credit card debt and saving $1,000. “Their eyes will gloss over if you start talking about retirement,” she says.

What Can Be Done?

Providers have a handle on targeting age groups in their materials, which retirement plan advisers can utilize to offer more high-touch service to plan sponsors and participants. Participants of all generations are beginning to communicate in different ways, and younger participants crave venues of communication beyond the traditional enrollment meeting.

Actually, it could present a challenge for advisers to get across retirement information when there is so much multidimensional information to compete with, Sujansky notes. That means it is imperative not to be boring. “This is a group that likes to be entertained,” she says. In-person communication, when available, is still a powerful tool. “Individualized one-on-one education is still very relevant to anyone of all generations,” Kronmiller says.

The people put in front of younger participants could also make a difference, Chepenik says. At his firm, they have a couple of advisers in their mid-20s. “It’s nice to have somebody in that room that they can connect with.”

Tweeting Retirement?

Providers and advisers are looking for new ways to communicate with participants, particularly those in the younger bracket. Using social networking tools, such as blogs, Twitter, and LinkedIn, could become more of the norm, Drahzal says. “Obviously, there are issues from a compliance perspective around these—but every one of those challenges can be beat.”

Providers and advisers already are using the Web by offering educational Webinars or newsletters (see “Spinning the Web,” PLANADVISER, May-June). Social networking has been suggested by some as an educational tool to pique interest in retirement and finance. While it might not have caught on at many financial firms just yet, some providers are trying to incorporate more tech-savvy tools, Kronmiller says. Principal is using text messaging and working on an iGoogle gadget, a widget that can sit on an individual’s personalized Google home page.

Principal also offers materials by “life stages.” Similarly, New York Life offers a campaign that targets eight groups based both on age and behavior. As part of a campaign to reach Millennials at a large employer client, Prudential gave participants a seed on biodegradable paper to plant a seed for good retirement. Morey notes that it blends multiple messages: simplicity, environmental consciousness, and the value of starting savings early. She says Prudential also has used direct mail campaigns using different language to target by both gender and age, which resulted in higher rates of enrollment and deferrals, specifically in the Millennial group of women (17.3% increase in enrollment after receiving a targeted message).

Using the provider is helpful to lasso whatever targeted communication and bells and whistles they come up with; it also is helpful to use the provider to get data about the plan that can be taken to the plan sponsor to show which age groups might need focus. “Advisers and plan sponsors should use us for the data that we have,” Garen says. Then, they can see whether a group or subset shows low deferral or enrollment.

As with any educational endeavor, going through the plan sponsor is the first step in reaching those in Generation Y. Chepenik notes that counseling plan sponsors about plan design can make a difference in helping younger participants save for retirement, such as lowering the eligibility or offering a match.

The key is to convince young people to get invested somehow—even if it is just a 1% or 2% contribution—so they do not miss critical accumulation years, says Todd Lacey, Managing Partner at The (k)larity Group, an NRP member firm in Athens, Georgia. While some participants might have high-interest credit cards they might need to pay off first, Lacey says it is better to convince many participants to save something than nothing at all—or else they will not go back to the 401(k). “That’s why auto-enrollment works so well,” he says.

The message seems more critical now than ever, as the current market turmoil might have shaken the already-conservative younger investor. The financial downturn presents an opportunity for younger investors, which makes education about the value of long-term savings more important, Ruggie says. “They’re the ones that not only have the most to gain by taking advantage of a down market, but also, to some extent, have the most to lose by not doing so,” he says.

See also: Audio Interview with Jason Chepenik

Gen Y by the Numbers

• 79%: 21- to 31-year-olds who would like access to professional financial advice at work, according to a Charles Schwab survey
• 47%: Principal participants ages 20 to 34 who prefer communication about retirement planning via e-mail
• 44%: 18- to 26-year-olds who think they will have to work past 65, according to a Scottrade survey
• 43%: Gen Yers who say their parents are the main source of help when making financial decisions, according to a Fidelity survey

How To Capture Gen Y Clients

• Use electronic media—such as newsletters, blogs, and podcasts—combined with personal meetings to remain visible.
• Be very clear about the investing and planning approach.
• Consider that they will live by different social rules—for instance, relationships are changing and marriage might happen later in life or never.

Source: “Generational Differences in Investing” by Mintel