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Retirement Planning > Saving for Retirement

How Can Employers Help ‘Generation DC’?

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New research from State Street Global Advisors examines a group it’s calling “Generation DC.”

“This watershed population of employees is the first to travel the retirement journey with minimal access to traditional pension plans and is instead testing what it means to self-fund and self-manage their retirement through an employer-sponsored DC plan,” the report states.

The research, which examines employees who participate in workplace defined contribution plans, surveyed 1,500 U.S. workers, ages 22 to 50, who were employed on at least a part-time basis and offered a DC plan by their employer.

SSGA picked this group specifically because it’s the first cohort to rely predominantly on a defined contribution plan as their primary source of retirement funding.

What the research finds is that, across the board, members of Generation DC understand the importance of saving for retirement, value their DC plans and welcome assistance from their employers.

According to the survey, 87% of the participants agree it’s important to start saving for retirement early and 83% agree that saving is a priority.

A vast majority (80%) also say they like their jobs and value their employee benefits.

Sixty-nine percent say it’s OK if the employer increases their savings rate 1% each year.

SSGA believes these findings are positive signs that all of Generation DC is ready to engage with plan sponsors about their retirement savings.

Participants in the survey were asked “Who do you trust?“

“Doctors came out as number one most trustworthy,” Suzanne Duncan, senior vice president and global head of research at State Street Center for Applied Research, said at a media briefing on Wednesday. “Interestingly enough, number two is employers. They do trust employees.”

Fredrik Axsater, senior managing director and head of global defined contribution at State Street Global Advisors, said this shows participants have a “great level of trust in plan sponsors.”

“That also means that plan sponsors and also financial advisors have a tremendously important role,” Axsater said at the media briefing. “That level of trust is higher for plan sponsors than it is for, say, financial institutions. In terms of changing the systems, in order to make retirement really work, plan sponsors have a very important role.”

This is especially true considering the survey finds a hefty number of young investors that admit their lack of knowledge around saving and DC plans.

According to the survey, 65% of participants aged 22 to 25 “think they are saving, but don’t really know much about retirement.”

And 47% of millennials overall (age 22 to 32) say they don’t understand investing. This decreases as the participant gets older, but there’s still a significant percentage of older participants that say the same. According to the survey, 29% of GenXers ages 45 to 50 say they don’t understand investing.

“It’s important for plan sponsors to help guide investors toward those well-diversified, age-appropriate funds,” Axsater said, adding, “A key responsibility for a plan sponsor is to help educate and nudge them into “age-appropriate, well-diversified vehicles.”

He emphasized how important this is because he said it takes more to save for retirement today than it used to.

“You estimate that if we save 11% per year throughout our career that it used to be using our long-term capital market assumptions as of 2007 that we had a 69% income replacement,” Axsater said. “That has now gone down to 43%, with the same 11% savings rate. If you’re invested in cash, or something like that, then it goes to 23%. The numbers will not work. We’re not going to get the retirement that we want to have unless we also are willing to take some risk in our investments.”

Axsater expects some plan sponsors – especially those “in the mega-market,” he says – to increase savings rates.

He’s already seeing this now at some of the largest plans in the country.

“An example is Credit Suisse, they automatically enroll at 9% and then they automatically escalate 1% a year to 15%,” he said. “That is much, much higher than some of the auto-enrollment that’s 3% and stays there. I think it’s very healthy.”

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