Data & Research November 20, 2007

Use of Auto Features Triples in One Year at Principal

In one year, the number of employer clients offering at least one auto-savings tool, automatic enrollment or automated savings increases, nearly tripled to more than 30,000, according to The Principal Financial Group.
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The firm’s annual report on retirement savings behavior in client plans says use of automatic enrollment by The Principal clients doubled in 2006 with the average participation rate 14% higher than with traditional plans, according to a press release. Automatic annual increases tripled with nearly 30,000 participants choosing to have their savings rate increased automatically each year. The average automatic increase selected was nearly 1.3% for an average of five years.

Enrollment

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Simple enrollment forms also tripled in 2006 among plan sponsors not using automatic enrollment, the release said. Nearly 11,000 plans replaced complicated enrollment forms with The Principal’s process called Easy Enrollment allowing participants to sign up in three steps.

Employees who earned more than $30,000 a year participated in their retirement plan at twice the rate of those who earned less than $30,000. The average account balance for highly compensated employees (about $157,000 per year) was nearly five times that of non-highly compensated employees ($32,000).

Females participated in their employer retirement plan at a slightly higher rate than men but had significantly smaller nest eggs. The average account balance for men was 77% higher than the average account balance for women.

The Total View also reports that participation increased by nearly 12 percent in plans that offered personalized, one-on-one assistance at the worksite.

Other Findings

Use of a pre-set savings rate quadrupled with nearly 7,000 plans offering employees a suggested beginning savings rate. The suggested salary deferral rate is pre-set by employers – typically to coincide with the employer match. The average starting deferral rate was nearly 5%.

Additionally, 80% of plan sponsors offered a lifecycle option in 2006 – twice as many as in 2004. The number of plan sponsors who chose a lifecycle option as their retirement plan’s default option more than tripled in 2006 from the previous year.

Younger participants (age 34 and under) were more likely than any other age group to cash out their retirement account when changing jobs. Twenty percent of the assets of younger job changers were taken as cash compared to only 7% of retiree assets cashed out in 2006. Overall, the vast majority of assets (90%) belonging to job changers remained invested in a retirement account in 2006.

The Total View is based on data for the 2006 calendar year collected from more than 38,600 full-service retirement plans and approximately 3.5 million participants served by The Principal. The report covers four core retirement plan designs: defined contribution, including 401(k) and 403(b); defined benefit; nonqualified; and Employee Stock Ownership Plan (ESOP).

To download the full report, visit http://www.principal.com/about/news/research.htm#retirement.

Data & Research November 19, 2007

Widowed Women Most Likely to Turn to Financial Advisers

Nearly half (40.5%) of widows say they rely on financial advisers for investing advice, more than double any other female demographic group, according to The OppenheimerFunds, Inc. 2007 Women&Investing Survey.
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When asked which source of information they relied on for investing advice, widowed respondents were followed by divorced (17.3%), married/co- habitants (16.7%), and single women(11%), according to an Oppenheimer press release. Widows were the least likely group to rely on no source of investment information.

Married and co-habitants are equally as likely to rely on co-workers, friends, and relatives for investment advice as they are their spouse or a financial professional, the release said. Most women surveyed (73%) overall do not work with a financial adviser and the number one stated reason (71%) is that they do not think they have enough money, while 8% said they invest on their own.

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Widowed respondents expressed more confidence when it came to managing their money, with nearly 65% of giving themselves a rating of 8 or better on a scale of 1-10 when asked how good a job they are doing managing their money. This compares with nearly 40% of married/co-habitants and single respondents and 52% of divorced respondents who answered in the same way. Among those surveyed who felt they were not very knowledgeable about investing, nearly 50% fell in the 35-54 age range.

“Our research shows that women want financial advisers to start discussing retirement planning with them more than 10 years prior to retirement, when in reality, those discussions need to take place much sooner,” said Lauren Coulston, Assistant Vice President, Advocacy and Training Manager at OppenheimerFunds, in the release.

Retirement Planning

Although the majority of women overall (58%) agreed that retirement was their primary investment goal, half indicated they do not participate in a retirement plan. When asked why, most (55%) responded that they do have enough extra money to save, nearly 40% said they are not working, and nearly 30% said paying off debt impacted saving for retirement. Further, 40% of respondents said they never rebalance their retirement plan portfolio.

Widowed respondents were more likely (almost 68%) to list retirement as their primary investment goal than women who are divorced (59%), married/co-habitants (57%), or single (54%). They were also least likely to cite a lack of extra money as the reason they are not currently participating in a retirement savings vehicle or plan, the release said.

Women within the second wave of Boomers-ages 43 through 51, within what is considered the “lost generation” and Gen Xers are the most unprepared for retirement, according to the survey. Overall, 79% of women did not feel financially prepared for retirement, the majority of which (52%) were between the ages of 35-54.

When asked how often they think about retirement, only 25% of respondents said they think about it often or very often and 30% said they do not think about it at all. Seventy-nine percent of women admitted to a lack of preparation for retirement.

Forty-four percent of respondents said retirement plans will be their primary source of income during retirement, one-third indicated they expect to rely on social security, and 12% on pensions.

An overwhelming majority of women said health care costs (93%), inflation (82%), social security (82%), and standard of living (80%) would be big concerns for them while they were in retirement. In fact, although 93% of women are concerned about health care costs in retirement, half of women surveyed said they do not plan to purchase long-term care insurance in retirement.

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