The post below is adapted from our newest special study, Satisfying Today’s Retirement Plan Participant. To secure your copy of this research report, please contact your Corporate Insight Relationship Manager.
America’s working population is undergoing shifts that will inevitably affect the retirement plan industry, with millions of Baby Boomers retiring and as many Millennials joining the workforce. Providers will have to adjust to the demands of young, tech-savvy employees who have high expectations for the participant digital experience and are skeptical toward financial services firms. These younger people also grapple with a unique set of challenges that both plan providers and sponsors will need to address in order to help them get on track to a comfortable retirement.
While the centerpiece of Americans’ retirement savings system, DC retirement plans have clear shortcomings. Access is far from universal, not all eligible workers end up enrolling, and many who enroll fail to contribute enough or invest too conservatively. According to a 2016 Wells Fargo survey, 41% of Millennials weren’t saving anything for retirement at the time of the study. Corporate Insight surveyed 1,488 defined contribution retirement plan participants in September 2016 and found that just 43% of Millennials meet the oft-cited industry benchmark of a 10% salary deferral rate. What’s more, 42% of the Millennials we surveyed have less than $50k in their employer-sponsored plans. Looking specifically at older Millennials, or those between the ages of 30 and 35, 36% have less than $50k.
Millennials’ insufficient saving for retirement can be attributed to several factors. For one, this demographic is struggling with economic challenges that are making it hard to prioritize saving for such a distant stage in their lives. Cost of living and personal debt are some key obstacles to saving. Wells Fargo found that over 71% of Millennials with student loan debt say their loans are holding them back from saving as much as they would like. Based on our own DC participant survey, the cost of living was cited as the primary challenge, followed by low income, student debt and other debt. It appears that Millennials are postponing saving for retirement in order to deal with more imminent financial hurdles.
Factors preventing Millennials from saving for retirement
What factors, if any, are currently preventing you from saving more for your retirement?
Another factor impacting Millennials’ retirement savings is that plan providers and sponsors themselves aren’t doing enough to help maximize workers’ retirement outcomes. Some sponsors, for instance, impose plan eligibility requirements, like a minimum age or tenure at the company. Others enforce vesting limits that lead some workers to forego valuable savings when switching jobs. While meant to lower costs and reduce employee turnover, these policies ultimately do a disservice to workers. Our survey also found a significant gap between the percentage of Millennials who want financial advice through their plans and the percentage who have been offered access to it.
Millennials are a mobile-first generation, many of whom came of age with the internet. They are fast adopters of new technology, which means that providers must build a strong, multi-channel digital experience if they are to serve young employees effectively. The industry has made meaningful progress here in the past few years, but significant work remains. In terms of mobile app capabilities, just 10 of the 19 leading retirement plan providers Corporate Insight tracks through its Retirement Plan Monitor service offer one or more transaction capabilities via their iPhone apps. While a significant improvement since 2013 – when just two out of 17 firms did so – the industry has yet to reach the standard set by other financial industry verticals, like banking and brokerage.
Beyond digital platform improvements, firms should expand their advice and education offerings to ensure better outcomes for younger employees. Specifically, providers should enhance their online retirement planning and guidance resources, develop financial wellness initiatives that consider participants’ entire financial picture, and create more interactive and engaging educational resources. Sponsors also have a role to play. They should eliminate barriers to plan participation, implement automatic savings features (e.g., automatic enrollment or automatic contribution rate increases), and make financial advice and/or managed account services available to their employees.