Defined contribution plan participants are gaining confidence about their retirement prospects, yet many still do not think they will have enough savings to leave the workforce when they want to, J.P. Morgan Asset Management reported Wednesday in releasing its latest DC plan participant survey.
“The survey shows that nearly three-quarters of participants are still missing their savings targets, so it’s critical that plan sponsors stay focused on evolving their plans to ensure participants have access to simple, streamlined services that can guide them on a strong saving and investing path,” Catherine Peterson, global head of insights programs at J.P. Morgan Asset Management, said in a statement.
And indeed, the survey showed that participants support plan sponsors’ efforts to strengthen their plans through target date funds.
Mathew Greenwald & Associates, a market research firm, conducted an online survey in January of 1,295 DC plan participants. To qualify for the study, each respondent had to be employed full time at a for-profit organization with at least 50 employees, be at least 18 years old and have contributed to a 401(k) plan in the preceding 12 months.
The survey results showed that there is still work to be done.
Only 52% of participants expected to be able to leave work at their ideal retirement age. The same percentage somewhat or strongly agreed that their savings would last throughout their lifetime.
Half of participants said they were willing to spend time planning, but admitted they did not know where to start.
Seventy-three percent believed they should be putting aside 10% or more for retirement, but a worrisome 70% of these participants were missing their savings targets.
Despite signs of improvement, less than 40% of participants said they were highly confident in their ability to make key investment decisions.
Motivating Participants to Save
J.P. Morgan’s report noted that plan participants generally expect employers to encourage them to save through their DC plans, but few want their employer to decide their savings rate for them.
It said that given the popularity of automatic enrollment and automatic contribution escalation, these employer initiatives seem to have achieved the right balance between providing guidance and allowing autonomy.
Seventy-eight percent of participants expressed support for a combination of the two automatic features as part of their plan. Eighty percent of those with both auto features expected their savings to last them through retirement, compared with 47% of participants who were only automatically enrolled.
However, the survey found that employer matches can be misinterpreted. Thirty percent of participants viewed their contribution match as a contribution recommendation, and 18% saw it as what their employer thought they should be saving.
The report said participant investing can be simplified by combining the offer of target date funds with re-enrollment strategies, where an employer notifies participants that their existing account balance and future contributions will be defaulted into the plan’s qualified default investment alternative unless they opt out or make a different investment selection.
Eighty-eight percent of survey respondents found TDFs appealing, including 81% of “do-it-yourself” investors. At the same time, TDFs have become plan sponsors’ QDIA of choice.
Despite this agreement, a discrepancy appears to exist between the views of plan sponsors and their participants regarding re-enrollment.
In a 2017 survey of plan sponsors, 24% said they had considered but did not conduct a re-enrollment for fear of employee pushback.
This year’s survey of plan participants showed that 86% supported a re-enrollment. Not only that, 99% of those who had gone through a re-enrollment and allowed their funds to be moved to a TDF expressed satisfaction.
The report said plan sponsors and their advisors should consider the distinct composition of their workforces, and the similarities and variances in motivation and behavior across age groups.
Consider that 57% of participants under 30 believed that their employer was obligated to help them choose the right investments, compared with just 18% of those 55 and older.
Under-30 participants were most confident about what they should invest in, while those over 55 were most confident about how much they would need to put away to reach their retirement goals.
A strong majority of participants across all age groups favored or at least were neutral toward re-enrollment, automatic features and TDFs.
Implications for Plan Sponsors
What does all this mean for plan sponsors? J.P. Morgan drew out three key implications.
Traditional approaches alone will not motivate employees to save and to save at sufficient levels. Automatic plan features can help plan sponsors improve saving behavior and put inertia to work for, not against, participants.
It is essential for plan sponsors to understand their participants’ level of saving and investing know-how and be aware of their attitudes and behaviors. By working closely with regulators, providers and advisors/consultants, they can continue to bolster their plans and help more participants turn their retirement resolutions into reality.
Although their saving and investing behavior and perspectives vary with age, participants are more alike than some may think. True, younger ones may be more receptive to automatic plan features and strategies, but older participants are also generally supportive of these approaches and satisfied with their experience of them.
“Re-enrollment and automatic plan features have the potential to positively impact retirement saving and investing for new and existing participants alike,” Meghan Jacobson, head of retirement insights at J.P. Morgan Asset Management, said in the statement.
“While some plan sponsors have been slow to implement these strategies for fear of pushback, our survey suggests that participants are actually supportive.”