Employers must make greater efforts to boost participation rates in defined contribution plans among the nation’s 61.5 million workers who are younger than age 35, a new report concludes.
Nothern Trust, Chicago, published this finding in a new survey, The Path Forward: Engaging the Younger Employee in DC Plan Participation. The report is the second installment of Northern Trust’s research series on the future of defined contribution plans.
Northern Trust engaged Greenwich Associates to interview 45 DC plan sponsors at some of the largest companies in the United States, plus 11 DC investment consultants. Altogether, the DC plans included in the analysis represent more than 1.5 million participants and more than $175 billion in assets.
According to the study, plan sponsors reported strong participation rates of 71% or higher among the majority of employees, but younger employees lagged their older counterparts.
Among employers reporting a participation of 71-80%, just 12% of employees were below age 35. This compares with a participation rate of 23% among employees age 35 or older.
The percentage difference between the two groups is even greater among plan sponsors reporting participation rates of 80%.
Among employers reporting a participation exceeding 80%, less half (46%) of employees were age 35This compares with 62% among employ. ees age 35 or older.
By contrast, among employers reporting a participation of 70% or less among the majority of workers, 42% of workers were below age 35 and 15% were age 35 or older.
“Employers should focus on this group of younger workers for two reasons,” said Bob Browne, Chief Investment Officer of Northern Trust. “First, this is a generation of workers for whom company-sponsored DC and 401(k) plans represent the primary — and in many cases the only — vehicle for retirement savings. Second, these young workers still have time to make and implement choices that will have a meaningful, positive effect on their financial situation later in life.”