Participants in defined contribution plans aren’t handling those plans well enough to see them through retirement.
That’s according to the latest installment of the Ready! Fire! Aim? research series from J.P. Morgan Asset Management, which finds that, continuing a decade-long trend, participants are failing to save enough, taking loans from their plans and withdrawing large amounts from the plan shortly after retiring.
There’s good news and bad news in the report, with auto-enrollment succeeding at expanding participant engagement being good news. It’s particularly effective among younger participants, with more than half of 25-year-olds now investing in a plan having been automatically enrolled.
But the bad news about auto-enrollment is that, if not coupled with auto-escalation, it fails to get passive participants to up their ante. Says the report, “A sizable segment of participants are starting average contributions at a minimum 3.3% rate and failing to take any action other than what the plan sponsor makes on their behalf to increase contributions.”
Also bad news: Even those who come in at the higher end of the salary range just aren’t putting enough away. And “only wealthier participants at the higher end of the average contribution rate spectrum are even approaching the savings rate of at least 10% recommended by many industry experts,” the report adds.