The
National Association of Retirement Plan Participants (NARPP) is offering plan
sponsors the opportunity to use its FELT study questionnaire internally, with
their employees.
NARPP’s
participant FELT (Financial Empowerment, Literacy and Trust) study examines the
key drivers of engagement and savings rates of participants. Specifically, the
study measures these participant metrics:
Satisfaction
with and helpfulness of education program; and
Levels
of trust and confidence in their service provider.
In
its first national FELT study in 2014, NARPP interviewed more
than 5,000 participants, representing a wide range of demographics, employers
and service providers. This study established that trust in the service
provider is a key driver of participant engagement. While it is helpful to have
a “big picture” view of all participants’ attitudes and behaviors, NARPP says
it is equally important for plan sponsors to have specific data about their own
employees.
NARPP
has developed an easy, turnkey system that plan sponsors can use with their
employees. The results of the study would be only for the plan sponsor and can
be compared to national norms and used to measure the impact of education
programs and initiatives. The study will be available for plan sponsor use in
April.
“Participant-reported measures have to play a more
central role in determining the effectiveness of education and engagement
programs,” says Laurie Rowley of NARPP. “Without concrete data that examines
all of the challenges facing participants, we can only guess at the path to
improving outcomes.”
Sponsors and plan service providers seeking more information can contact Laurie Rowley at Laurie.Rowley@NARPP.org
or visit the NARPP website, www.NARPP.org.
Each Generation Has Financial Weaknesses to Address
Holistic financial education can help different generations in the workforce address their unique vulnerabilities that can derail plans for retirement.
Millennials,
Generation X and Baby Boomers each have distinct strengths and weaknesses when
it comes to managing and saving money, research from Financial Finesse shows.
While
Millennial employees (younger than age 30) tend to have the lowest average
financial wellness scores as a whole, they continue to slightly edge out
Generation X in several areas of money management, Financial Finesse found. However,
Millennials may have been the most impacted psychologically from the Great
Recession. From the way they manage their money to the way they invest, the
focus is more on not losing money than growing their wealth for the long term.
Gregory
Ward, director of the Financial Finesse Think Tank in El Segundo, California,
says they see evidence of this in calls to the firm’s live helpline. “When we
look at the types of calls we get from Millennials and compare this to outside
research, we get a sense that Millennials are very concerned about student loan
debt, and they lack trust in the financial industry as a whole,” he tells
PLANSPONSOR. “They are more concerned about immediate needs and debt, and they invest
conservatively. They are focused on maintaining the money they have and doing
the best with it, while other generations are more concerned with investing and
making money grow.”
The
research found Millennials’ most common vulnerability is not saving enough for
retirement. The dwindling availability of traditional pension plans and potential
cuts in government entitlement programs can make retirement preparedness even
more challenging for Millennials than for older generations. However, they lag
the older generations in contributing to their employers’ retirement plans
(83%) and running a retirement calculation to see if they’re on track (27%).
Financial
Finesse’s 2014 Generational Research report says part of the problem is that Millennials
are the only generation not to have retirement planning as their top priority. Instead,
it placed third (56%) behind managing cash flow (76%) and getting out of debt
(59%).
Ward
says automatic enrollment and defaulting Millennials into target-date funds
(TDFs) is a good thing. Millennials feel too conservative though they have many
years to save and invest. “The idea of being too aggressive doesn’t settle with
them, but when talking about something as far away as retirement, it makes sense
to have more aggressive investments,” he says. However, if Millennials don’t
have the mindset that their investments are for the long-term future, there’s a danger
they will panic with the next market correction.
According to Ward, plan
sponsors should recognize that Millennials grew up in a technology-rich
environment, so incorporating gamification into financial education will
probably result in more uptake and an enhanced learning environment. And, since
Millennials like to talk to each other and get opinions, social media should be
used in education.
As
for Generation X (ages 30 to 54), competing financial priorities make them the
most financially at-risk group. As Generation X is more likely to own a home
(69% vs. 23% of Millennials), and they are the generation most likely to have
minor children of their own to take care of (57% vs. 26% of Millennials), not
having enough emergency savings is a top vulnerability.
The
research found only 17% of Generation X are on track to reach income
replacement goals in retirement, yet 23% are putting money into 529 college
savings plans. Ward says parents should prioritize and recognize that, based on
their financial resources, they may have to sacrifice some children’s
activities.
He
notes that Generation X is a very independent generation; they grew up in a
time without “helicopter” moms. They don’t necessarily want to be told what to
do, but they want to be able to get what they need when they need it. Plan
sponsors should offer do-it-yourself tools, such as advice services they may sign
up for if they want, assessment tools or online education.
Financial
Finesse found only about three in 10 Baby Boomers feel confident they are
prepared for retirement. Only about half reported they have run calculators to
assess their preparedness.
Ward
says Baby Boomers who call the Financial Finesse helpline often ask if they
have enough money to last the rest of their life. They have a perpetual feeling
of inadequacy about their retirement savings, but that doesn’t mean they aren’t
prepared. It may mean they haven’t used resources to assess their readiness or
talked to an adviser.
Baby
Boomers are also unsure of decumulation strategies for their retirement savings
and when to take Social Security, and their plans for retirement may not
prepare them for a major event. The research found Baby Boomers are, overall, the
most financially secure, but they face an impending health care crisis due to
longevity and inadequate insurance planning. Only 16% of Baby Boomers reported
having long-term care insurance, despite estimates from The U.S. Department of
Health and Human Services that 70% will require some level of long-term care in
retirement.
Ward
says plan sponsors can provide financial education for Baby Boomers’ transition
from working years to retirement. It should include discussions about
distribution strategies, Social Security and estate planning. He adds that annuities
have gotten a bad rap, but it appeals to Baby Boomers to take savings and
convert it to a monthly income for life—to not have their savings exposed to
potential volatility. “Plan
sponsors should consider offering annuities within their retirement plans. That
is usually a better-priced option than if employees went to the market on their
own, and it will enhance the likelihood that retirees will enjoy a comfortable
retirement,” Ward says.
According
to Ward, employers and the retirement industry are starting to align with the need
for holistic financial wellness education for all generations. It can change
employee retirement savings behaviors, result in less absenteeism and less wage
garnishment due to financial issues, and decrease the number of retirement plan
loans taken.
Financial Finesse expects
to see double digit growth in plan sponsors offering holistic financial
wellness in the next few years.