CI Interview: Satisfying Today’s Retirement Plan Participant

Michael Ellison by on Dec 07, 2016

This month, Corporate Insight will publish a new special study on the retirement space. Satisfying Today’s Retirement Plan Participant combines insights from an in-depth survey of close to 1,500 retirement plan participants with our analysis of retirement industry trends and emerging best practices for the digital participant experience. The report also analyzes the challenges facing Americans as they increasingly take responsibility for financing their own retirements and offers our thoughts on how providers can improve plan participant outcomes. I recently sat down with Silviya Simeonova, lead author on the study, and James McGovern, head of our Consulting Services team, to discuss the objectives of the study and some of the key findings from the research.

Ellison: Why did you decide to do this study?

McGovern: It’s been three years since we published our first retirement plan industry-focused study – the DC Plan Participant Survey Report. That report analyzed the results of a participant survey we conducted that focused on the way participants interact with their plans via the online channel and how behaviors differ by various demographic factors. Since 2013, we’ve seen some significant demographic changes, with millions of Millennials joining the workforce and enrolling in DC plans and millions of Baby Boomers entering retirement. We’ve also seen major improvements in the digital experience offered by DC plan providers, particularly in terms of mobile functionality. There’s also been some significant industry consolidation, and clear advancements in technology like mobile and social media. With all of this change, it felt like the right time to take another look at the industry.

Ellison: How will this report differ from 2013’s DC Plan Participant Survey Report?

McGovern: Our new study provides much more analysis of the current industry context, along with actionable insights into digital platform best practices for participants. We also discuss the challenges that plan participants face, drawing on our survey data and third-party sources.

Simeonova: In terms of the survey component, this time around we interviewed close to 1,500 participants versus 1,000 in 2013, allowing us to do more refined demographic analysis. We also asked more questions about satisfaction with providers and satisfaction with and usage of various dimensions of that relationship, like financial planning and managed accounts. Our new survey also goes much deeper into the way participants interact with their providers via the mobile channel, supplementing our usual in-depth questions on web usage and importance.

Ellison: You mention the challenges facing participants, can you elaborate on what you mean?

McGovern: The most obvious challenge is that Americans aren’t saving enough for retirement. The Federal Reserve reported in 2013 that 31% of the population has nothing saved for retirement. Our survey results painted a less bleak picture, as we specifically targeted individuals enrolled in an employer-sponsored plan, but even here we see plenty of reason to be concerned. Thirty-five percent of the Baby Boomers we surveyed reported having less than $200,000 in their defined contribution plans. Looking at Millennials, 36% of older Millennials – those between 30 and 35 – have less than $50,000 in their accounts. As bad as these figures sound, the savings gap is more pronounced for individuals without access to an employer-sponsored plan.

Simeonova: Women – half of the population and a growing share of the workforce – are disproportionately affected by this retirement savings crisis. Our survey found that female participants are less confident in their ability to afford the retirement lifestyle they desire, less aggressive in their investing and less likely to be aware of how much they need to save for retirement. They also tend to live longer than men, and are more likely to take a break from working in order to raise children – two important factors complicating the retirement planning arithmetic.

Figure 1. Retirement Confidence

As you think about your retirement savings, how confident are you that you will be able to afford the retirement lifestyle you desire?

Figure 2. Retirement Awareness

Do you know how much savings you will need to afford the retirement lifestyle you desire?

  


Ellison: What are the implications of these challenges? And what are some measures providers can take to address them?

Simeonova: Perhaps the most obvious implication is that plan providers and sponsors alike should be doing more to address the retirement readiness gap. They must do more to tailor their communications to the needs and circumstances of different participant segments. Finding the right way to communicate with plan participants and keeping them engaged through well-designed digital platforms is critical, especially when it comes to Millennials.

To be fair, providers have taken major strides here in the past two or three years. When we first surveyed this market in 2013, other financial services industry verticals like brokerage and banking were light years ahead of retirement in terms of their digital offerings. Since then, plan providers have listened to participants and made some much needed improvements. Mobile apps and responsively designed websites have become common, and firms are increasingly focused on education and retirement planning. Some firms try to engage participants through “retirement stories” and interactive tools that help them better visualize the nebulous concept of a retirement 30 years away.

That said, there is still room to grow here. We found that just 34% of participants are very satisfied with their provider’s website. Our Retirement Plan Participant Audit service, which benchmarks the websites and mobile apps offered by leading defined contribution plan providers, shows that the retirement plan industry continues to lag other financial services industry verticals in terms of digital offerings. So while the trend is certainly positive, the industry still has work to do here.

Ellison: Other than ramping up their digital offerings, what else can plan providers do to help people stay on track for retirement?

McGovern: The industry suffers from an engagement problem, part of which is self-inflicted. Providers have long discouraged participants from tinkering with their plan investments, preaching a “set it and forget it” mindset. Auto enrollment has also eliminated the need for many participants to take an active role in managing their plan. Providers need to make a concerted effort to break through participant indifference if they want to ensure that the investment they have made in improving their digital capabilities yields a positive return for participants, sponsors and the providers themselves.

Simeonova: We think the lack of communication from providers is a clear weakness for the industry. We found that 76% of survey respondents report that they receive communication from their plan providers once per quarter or less. We suspect most of this communication is tied to the participant’s quarterly account statement. Firms tend to be conservative when it comes to reaching out to promote retirement readiness tools or educational materials that could result in better retirement savings outcomes. More frequent – and relevant – communication, in a personalized voice that resonates with people, could go a long way toward getting participants to take a more active interest in saving for their retirement through their employer-sponsored plans.

Ellison: Can you share any other key takeaways from your research?

Simeonova: Interest in getting professional help with retirement planning is clearly on the rise. This appears to be driven by Millennials. As many as 89% of the Millennials we surveyed indicated they would like some input from a professional when it comes to managing their retirement savings – whether it’s a little help or giving full discretion to a professional money manager. Unfortunately, just 58% reported that their provider had offered them access to a financial advisor or planner, which suggests a major unmet need.

Figure 3. Participants’ attitude towards advice

When you think about getting help planning for your retirement, which of the following statements best describes you?

In terms of the digital channel, Millennials prioritize planning, advice and education more so than their older counterparts do, which is something we have observed in our other surveys of individual investors and bank customers. If providers want to help Millennials adequately prepare for retirement, they have to understand their desire for getting help from a human professional and their interest in digital tools and content that they can use on their own time to become more effective investors.

Ellison: Were there any surprises in your research?

Simeonova: There were. One of the bigger surprises was how confident our survey respondents are about their retirement preparedness. Fifty-seven percent indicated that they are confident or very confident that they will be able to afford the retirement lifestyle they desire, and 33% of people are somewhat confident. These numbers are higher for Baby Boomers and members of the Silent Generation. When we compare these confidence figures to the actual assets that participants say they have saved in their DC plans, there’s some clear cause for concern. This again speaks to the need for providers to take an active role in educating participants about the need to save more for retirement. Plan sponsors can also play a role here, by making it as easy as possible for people to save. This includes removing unnecessary hurdles like long vesting periods for company contributions and a minimum age for 401(k) enrollment.

Ellison: Do you have any closing thoughts?

McGovern: Given the uncertain future of Social Security and the well-documented decline of the defined benefit plan, defined contribution plans have really become the foundation of our nation’s retirement savings system. That’s why it’s so critical that providers and sponsors work together to spur participants to make the most of their DC plans. More and better communication should improve participant engagement, which should ultimately lead to better retirement outcomes. Beyond that, access to advice is only going to grow in importance as Millennials become the majority of the workforce over the next few years.

For more information on Satisfying Today’s Retirement Plan Participant, please contact Erin Bosetti at 646-432-5483 or ebosetti@corporateinsight.com.