Data & Research July 15, 2021

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.

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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.

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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.”

Client Service July 15, 2021

Practice Progress: SEPs, SIMPLEs and More: Growing a Practice With Smaller Clients

A PLANADVISER webinar underscored key plan design offerings when working with smaller plan clients.

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Many 401(k), 403(b) and defined benefit (DB) pension plans are suitable for midsize and large employers, but can be difficult for small businesses to implement. To help advisers understand what works for these clients, a “Practice Progress” webinar hosted by PLANADVISER discussed how advisers can profitably and efficiently serve small business clients and sole proprietorships.

Josh Sailar, partner at Blue Zone Wealth Advisors, began the discussion by noting the differences between working with a large organization versus a smaller one. When working with a small company on a defined contribution (DC) Employee Retirement Income Security Act (ERISA) plan, such as a 401(k), the plan’s design can be challenging, he said.

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“When you’re dealing with an ERISA plan, there really is no room to mess around in terms of compliance and nondiscrimination testing,” he noted. “There is quite a bit of value-add that goes into structuring a plan efficiently for the type of company you’re working with.”

David Flores Wilson, a managing partner for Sincerus Advisory and a writer/editor for Planning to Wealth, agreed, saying that, in many cases, it’s difficult to tailor plans for smaller companies.

“The owner can come to you with a solution in mind, just not knowing the trade-offs or the effects that can pour over into other aspects of the business,” he said. “There’s value in assessing one way to look at it and the domino effect there.”

When it comes to retirement plans, both panelists said SEP [simplified employee pensions], SIMPLE [savings incentive match plans for employees] and solo 401(k) plans are effective plan designs that take little preparation for smaller clients. For example, a business owner might not be able to open a 401(k) by the end of the year, but he can open a SEP plan with less time and effort, Wilson said.

Sailar agreed, adding that small employers can use a SEP as a hybrid plan until they choose to offer a more complex option, such as a 401(k). “A SEP is the go-to in terms of the benchmark,” he said. “There’s no need to take on that additional cost complexity.”

Sailar said no matter what type of plan an adviser recommends, it’s important to have a well-thought-out investment platform that can drive out year-over-year returns for participants. “It’s about optimizing the plan, not getting home runs year over year,” he said. 

When working with smaller clients, both Sailar and Wilson agreed on the importance of collaborating with multiple parties, rather than an all-in-one business. Bringing in varied perspectives means business owners are more likely to reach any plan goals they want to achieve, Wilson said.

At Blue Zone Wealth Advisors, for example, Sailar said he and his team work with tax advisers and accountants, even though Sailar has had some experience working with personal and business tax returns. “This isn’t to say that I have nearly the amount of experience with the tax code that others have, and that shows why they are extraordinarily valuable. It is nice to know how to plan so that there are no bad surprises in terms of tax management and exposure,” he said.

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