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Retirement Planning > Retirement Investing

Key features drive retirement plan participation

By Maria Wood

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Numerous studies have indicated that Americans need to save more for retirement, and with defined contribution (DC) plans replacing pensions in most workplaces, the onus is now on employees to take control of their financial future. So how can employers ensure their workers are making the most of their retirement savings programs?

A recent study by the Principal Financial Group found that several key features can boost retirement plan participation and savings rates whether all are offered or a combination of just two are available. Those four features include: automatic enrollment, automatic increases, online deferral changes and employer contribution.

After reviewing more than 25,000 retirement plans, Principal noted that when at least two of those features can be accessed in any combination, the average total participant savings rate stands at 11 percent, which is more than double the national average.

If all four options are offered, participation rates rise a whopping 70 percent, going from 47 percent when none of those features are extended to workers to 79 percent when all are available.

Jerry Patterson, senior vice president of retirement income strategy at the Principal, stated in a release accompanying the report that its research indicates U.S. workers need to save between 11 percent and 15 percent, including employer contributions, over their entire working career to replace 85 percent of income in retirement.

“The good news is simple plan design changes and a goal-driven approach can be powerful motivators to boost participation and savings,” Patterson said.

To lift savings and participation rates, Principal recommends employers follow these guidelines:

  1. Automatic enrollment for all employees at 6 percent deferral.
  2. Automatic annual increases of at least 1 percent annually.
  3. Online deferral changes available to participants.
  4. Employer contribution or match.

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