Workers More Receptive to Auto-Features, Post-COVID-19
More than eight in 10 say they want to be automatically enrolled into a plan at an early age, according to Principal, but only a third of employers are offering the feature.
Eighty-four percent of workers who have been automatically enrolled into their workplace retirement plan say they are glad that their savings has been jump-started. In fact, they say auto-enrollment has gotten them on the retirement savings path at an earlier age than if they had made the decision on their own. This is according to Principal’s latest “Retirement Security Survey,” which is based on a poll of more than 2,000 workers and retirees, and 230 plan sponsors.
However, the survey, conducted in June, also found that only one-third of employers currently offer auto-enrollment. Among the employers that the Principal survey found using auto-enrollment in their plan designs, 21% are deferring their employees’ salary at 6%, which more retirement plan experts have been encouraging.
The findings come as many American workers, having been vaccinated against COVID-19, have started returning to work. With that seems to have come more thought about their futures, Principal says, as the survey also found that respondents say they need to save 11.6% of their paychecks, on average, to help meet retirement goals.
Besides auto-enrollment, participants in the survey said they want to defer a high amount of their salaries, or whatever they are able to save, to help meet retirement goals. Eighty percent hope their employer will offer financial wellness programs to help them increase their financial literacy, and 60% hope these financial wellness programs will also help them improve their retirement readiness.
“We’ve known for a long time that automatic enrollment features are powerful in helping people feel more secure as they strive to build up retirement savings, but these latest survey results show we currently have a window of opportunity for access to education, as well as implementation,” says Sri Reddy, senior vice president, retirement and income solutions, Principal Financial Group. “The findings also show that when employers provide access to retirement features, such as automatic enrollment and company matching, the majority see improved savings from their employee base.”
In fact, the survey showed that 47% of workers say the company match is the No. 1 incentive toward them increasing their contribution rate.
Furthermore, besides boosting the participation rate in their defined contribution (DC) plans, employers are looking at other ways to help their workers save. For example, 32% of employers are thinking about steering workers who’ve reached the IRS maximum contribution toward an individual retirement account (IRA). Additionally, 31% of employers are considering automatically enrolling Generation Z workers (i.e., those 26 and younger) into a financial literacy education program.
Congress Considers Action on Automatic Enrollment
The results of the Principal survey come as Congress is considering legislation to incentivize auto-enrollment features in retirement plans to encourage workers to save or save at higher contribution rates. The pending retirement legislation, called the Security a Strong Retirement Act of 2021, or SECURE 2.0, would require a minimum of 3% auto-enrollment for most new 401(k) and 403(b) plans.
“This is a crucial time for employers to review their retirement plan offerings,” Reddy continues. “A tight labor market combined with new and evolving employee needs due to the pandemic make it more important than ever for plan sponsors to offer impactful retirement saving solutions. The tried and true methods of auto-enrollment, company matching and individualized financial education remain powerful assets in helping people save for their futures.”