Benefits December 14, 2012

Millennials at Risk for Low Savings

December 14, 2012 (PLANSPONSOR.com) – Millennials need help to participate in employer-sponsored retirement plans, according to Wells Fargo.
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When they were not automatically enrolled, just 13.4% of Millennials participated in employers’ plans—a drop of 22% in the past year. The rate of participation at companies that auto-enroll employees was nearly five times that, data from Wells Fargo Retirement found.

Among those who do contribute, Millenials’ savings rates are dangerously low, with almost half (47.3%) putting away 3% of salary or less. This is a modest improvement from last year’s 49.7%, and comparable to the members of Generation X (32.8%) and Baby Boomers (24.9%) who contribute at the same rate.

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“Getting into the plan is the first step, but saving at a rate of 3% or less isn’t going to get them [participants] to a financially viable retirement,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust.

The percentage of Millennials doing all three key things to save for retirement—participating, contributing at an adequate rate and being appropriately diversified—is just 5.2%, down slightly from 5.5%.

Most of Millennials’ participation can be attributed to automatic features in company plans, Nordquist added, suggesting that automatic escalation may be needed to encourage higher savings rates.

Recognizing and responding to Millennials’ attitudes and behaviors can also help direct their focus away from short-term savings concerns and toward retirement. Nordquist suggested reaching out to younger participants through “an expanded social media effort, enhancing delivery preference options available to participants, increasing the frequency and delivery options for webinars, and using QR codes for smart phones.”

Additional findings include:

  • All generations are seeing a gradual increase in the use of managed investment products. Millennials are the highest, at 85.8%;
  • Millennial usage of managed investments is up 2.9%, compared with 4.3% for Gen X and 4.7% for Boomers; and
  • Millennials are the most frequent users of Roth 401(k) contributions, with 14.3% contributing Roth dollars when the feature is available—a year-over-year increase of 16%—compared with 9.4% for Gen X and 5.8% for Boomers.

This data is based on analysis of 1 million eligible Millennial participants in retirement plans that Wells Fargo administers.

—Sara Kelly  

Benefits December 14, 2012

Mandatory Retirement Plans Help Higher Ed. Employees

December 14, 2012 (PLANSPONSOR.com) – Mandatory defined contribution (DC) retirement plans have been prevalent in both public and private higher education institutions.
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An analysis of 415 plans recordkept by Fidelity Investments finds 68% of public colleges and universities provide at least one mandatory retirement plan to employees, as do 78% of private colleges and universities. Among the advantages of mandatory plan design are full enrollment of benefits-eligible employees and automatic, nondiscretionary contributions, according to a Fidelity report.  

“Defining Excellence: A Report on Retirement Readiness in the Not-for-Profit Higher Education Industry,” the second report in a series from Fidelity, finds mandatory employer core contributions help public and private institution employees save as much as 9.5% and 10.1%, respectively, of their annual salaries—close to the recommended 10% to 15% overall savings rate.  

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The report suggests plan designs that include both fixed core contributions and match contributions can result in increased employee engagement in the plan, increased retirement readiness as a result of an increase in total savings and potentially lower employer costs through the elimination of a guaranteed employer payment in favor of a match contingent on employee contributions.  

The first report in the series detailed how higher education retirement plan sponsors lag behind sponsors in other sectors in adopting plan features to improve employees’ retirement savings and highlighted three key areas for improvements in plan design (see “Room for Improvement in Higher Ed. Retirement Plans”).  

In the second report, John Ragnoni, executive vice president, Fidelity tax exempt retirement services, lends guidance to plan sponsors at public and private academic institutions so each might establish best practices to maximize employees’ retirement readiness across all ages. The second report also includes a case study about Stanford University’s retirement program.  

The report is here.

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