Data and Research December 11, 2018

OregonSaves Shows Initial Success

At the time of an analysis from the Center for Retirement Research (CRR) at Boston College, 62% of eligible workers were participating, and 93% of contributing participants had not changed their default deferral rate of 5%.

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Preliminary data from the OregonSaves state automatic IRA program suggest that the majority of eligible workers are participating and that those participants are, by and large, remaining passive with respect to their contribution rate.

The program passed its one-year anniversary in July.

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According to an Issue Brief from the Center for Retirement Research (CRR) at Boston College, Oregon’s implementation has also highlighted challenges related to being the first such program in the country, such as helping employers unfamiliar with OregonSaves to provide timely and accurate data, processing payroll deductions, and staying on top of changes to employees and payroll deductions. Oregon’s registration exceeded expectations at its November 15 deadline for firms with more than 50 employees, with over 1,200 registered employers at that time. Oregon allowed smaller employers to enroll early, and more than 600 did so. There has also been a sharp uptick in registration recently, with about 500 employers registering in the last month as the mid-December deadline for employers with between 20 and 49 employees approaches, leading to a total of about 1,800 registered firms. However, only about one-third of the employers who have registered have actually begun submitting their employees’ contributions, a lag that existed even before the most recent group of employers registered.

Despite this lag, approximately 22,000 workers had accounts with a balance on November 30, 2018; and these workers held more than $10 million in total assets. The program has seen the addition of an average of nearly 2,000 actively contributing employees per month.

At the time of its analysis, of the 39,524 individuals currently able to participate in the program, 62% were participating, although a little more than one-quarter of them were still waiting for their first contribution to be made. On the other hand, 33% were not participating. The CRR says this non-participation occurs for two reasons: the worker formally opted out of the program (29%) or the worker set contributions to zero before making an initial contribution (4%). About 5% of the sample were non-contributing participants, i.e., they had made some contributions to the program but had since set their contributions to zero.

Workers who chose not to participate offered three main reasons: 30% said they could not afford to save, 19% said they had their own or another retirement plan (e.g., through a spouse), and 12% said they did not want to save through this particular employer. The CRR speculates this is perhaps because they did not expect the relationship to last long or because they have another job where the employer is not yet registered.

OregonSaves has a default deferral rate of 5% of pay that automatically increases by 1% per year until reaching 10%. As of November 30, 93% of contributing participants had not changed their default deferral rate of 5%. Of the remaining 7% who had made a change, 5% had decreased their deferral rate and 2% had increased their rate—usually to 10%.

“The preliminary data from OregonSaves show that important assumptions about how workers would react to the availability of auto-IRAs appear to be holding up, at least in the context of their behavior within the program. The data will ultimately offer other states a unique perspective on the factors related to the success of their programs, and will make it possible for researchers to investigate the extent to which such programs will actually improve retirement security,” the CRR wrote in its brief.

Modeling scenarios for the OregonSaves program, the Employee Benefit Research Institute (EBRI) revealed results last month that showed state-run automatic IRA programs could reduce Oregon’s retirement savings shortfall by as much as 16%.

Data and Research December 11, 2018

Financially Well Employees Buoy the Bottom Line

According to John Hancock data, helping employees reduce their financial worries is well worth employer’s time and attention.

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John Hancock has published the results of its annual Financial Stress Survey, which compiles the responses of more than 1,350 retirement plan participants.

According to the research, a sizable majority of workers (69%) are stressed over their finances, leading to a range of behaviors that can cost companies approximately $2,000 in excess labor costs per employee. Most respondents (72%) admitted to worrying about personal finances while at work, with one-third doing so more than once per week. The research finds that worker productivity is directly impacted by this stress, generating excess employment costs.

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“Slightly more than three-quarters of survey respondents cited lack of retirement savings as a leading factor affecting their stress,” the survey report says. “Nearly half report they worry about it ‘a great deal,’ and only 40% expect to retire ‘about when planned.’”

Rounding out the top five causes of financial worry in the workplace were college loans (76%), monthly rent payments (64%), lack of emergency savings (59%), and overall current financial situation (62%).

“That financial stress is triggering both physical and psychological symptoms for about 60% of respondents, causing anxiety, lack of sleep and a feeling of being overwhelmed—all of which can affect a person’s productivity in the workplace,” the research says.

Patrick Murphy, president and CEO, John Hancock Retirement Plan Services, says the research clearly shows how people need help managing competing financial obligations.

“It is up to providers, advisers and employers to offer participants a holistic approach to financial wellness,” he says. “That is how we will help people achieve financial success, whatever that may mean to them.”

According to John Hancock data, helping employees reduce their financial worries is well worth employer’s time and attention. More than two in five respondents feel they would be more productive if they did not spend time worrying about their finances at work, while three in five respondents think getting financial advice at work would reduce their stress. Sixty-five percent believe it would help them start saving more for retirement.

“When asked what financial issues they would like help with, three-quarters cited retirement income preparation aid, followed by Social Security and Medicare claiming (60%), and debt counseling (32%),” the survey report says.

“Financial stress is one of the biggest concerns among our participants—and it has implications for their health, healthcare costs, and premiums, and ultimately, their productivity,” Murphy says. “Our survey shows employers can play a role in making their employees’ financial lives better—and if done well, it may even benefit the company’s bottom line.”

The full results are available here.  

Similar take from competing providers

Wells Fargo Institutional Retirement and Trust recently published its annual Retirement Study, finding once again that employees are being asked to shoulder more responsibility for directing their own retirement savings effort. Like the John Hancock research, Wells Fargo’s analysis finds widespread financial stress among U.S. workers.

According to Wells Fargo leaders, probably the most important overall finding in this year’s analysis is the strong positive impact on participant outcomes associated with having “a planning mindset.” This is to say that Wells Fargo uncovered four specific participant characteristics that correlate with a significantly better financial life—including lower levels of reported financial stress and greater reported financial outcomes. These characteristics include having set a specific money-related goal in the preceding six months; having previously set a specific long-term financial goal, such as a retirement age or savings level; feeling good about planning financial matters in general over the next one or two years; and preferring to save for retirement now rather than waiting until later.

Wells Fargo’s report goes on to suggest providers and plan sponsors can be proud of the fact that employees generally perceive their retirement plan offerings as being high quality and as having a strong positive impact on both their short-term and long-term financial lives. As the survey shows, 92% of workers say they feel more secure about retirement because they have contributed to a 401(k), and 82% of those with access to a 401(k) say they would not have saved as much for retirement at this stage if not for the 401(k).

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