Benefits October 23, 2014

A Good Score for Retirement and Health Savings

October 23, 2014 (PLANSPONSOR.com) – Saving for retirement and health care expenses was a priority for employees of all ages during the first half of 2014, a new report shows.
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Millennials in particular seem to be more energized about saving and investing for the long term, according to the Bank of America Merrill Lynch 401(k) Wellness Scorecard. The semiannual report suggests increased mobile access, 401(k) auto-features, and more personalized advice have made employee benefit plans more valuable and easier to use for the typical participant.

The shifting 401(k) landscape seems to be drawing in younger employees with the most success. The Scorecard shows nearly 40,000 Millennials enrolled in their employer’s 401(k) plan for the first time during the first half of the year—a 55% rise from the same six-month period last year. Across all generations, the report found a 37% increase among first-time contributors, further demonstrating the spikes in interest from younger cohorts of workers looking to take charge of their long-term financial picture. Researchers suggest the growth could mean this age group appreciates the need to save for a future with greater health care costs and a lack of defined benefit pension coverage.

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Other key insights from the new Scorecard show strong growth for health savings account (HSA) usage, which increased 33% during the first six months of 2014. More than 384,000 workers now utilize these tax-advantaged vehicles to prepare for qualified near- and long-term medical expenses. While Baby Boomers and Gen Xers make up the majority of account holders, at 38% and 39%, respectively, Millennials are 23% of the HSA market—suggesting more workers are using the accounts earlier in their careers.

“Seeing younger generations more vigorously engaged with workplace savings vehicles is encouraging,” says David Tyrie, head of retirement and personal wealth solutions for Bank of America Merrill Lynch. “These actions represent significant steps toward achieving long-term financial wellness in an era of rising health care costs, increasing longevity and self-reliance due to fewer pension plans.”

The Scorecard also looks at participant engagement with Bank of America Merrill Lynch’s Benefits OnLine Mobile site. Site traffic increased 41% during the first six months of 2014, with approximately 170,500 unique users accessing their benefits via a mobile device, up from 120,500 during the same period last year. This is further demonstration that participants want to receive education and information about their benefit plans on the go, the report says.

Another positive finding in the report shows employers continue to seek proactive ways to help their employees achieve their retirement goals and improve their overall financial wellness. Results from the report show that, during the 12-month period ending June 30, 2014, the number of 401(k) plans combining auto-enrollment and auto-escalation grew 19% compared with the same period a year earlier.

Other findings on automatic plan features show nearly all employers (94%) that added auto-enrollment during the first half of this year also added auto-increase provisions, compared with 50% during the same period last year.

Overall, more plan sponsors are adding “voluntary auto-increase” to their plans, the Scorecard shows, with a 63% increase in adoption of this feature during the last 12 months. As the Scorecard explains, voluntary auto-increase must be activated by a participant before taking effect, as opposed to true auto-increase provisions, which are activated when an employee joins a given plan. Employees are responding to this feature, as evidenced by a 27% increase in the number of participants activating auto-increase.

“With intuitive plan design strategies, companies are making access to financial benefit plans and decision-making about enrollment and contribution rates easier, and helping employees achieve better outcomes through personalized education and advice,” explains Steve Ulian, head of institutional business development for Bank of America Merrill Lynch. “By further integrating how employees save for retirement and long-term health care costs, employers can help people see a more complete picture of their financial wellness and make informed choices.”

One feature of the Scorecard breaks down the expected sources of retirement income for each generation with some representation in the U.S. workforce, from Millennials to the Silent Generation (those ages 69 to 89).

Moving from the oldest generation to the youngest, there is a clear trend of decreasing expectations for pensions and Social Security to deliver retirement income. For example, while the Silent Generation expects to get 55% of total retirement income from Social Security, Millennials anticipate getting just 26% of retirement income from the government program.

Interestingly, defined benefit pension plans account for only 22% of expected retirement income for the Silent Generation, falling to 19% for Baby Boomers, and 12% for Generation X and Millennials. Also striking is that Millennials expect to get up to 26% of retirement income from “employment income,” showing they may not picture retirement the same way as older generations. Boomers, for instance, expect to get only 17% of income from employment in retirement, and the Silent Generation expects only 5% of retirement income from this source.

To access the Bank of America Merrill Lynch 401(k) Wellness Scorecard, clickhere. The report’s 401(k) data is based on Bank of America Merrill Lynch’s proprietary business, which comprises $129 billion in plan assets across more than 2.5 million plan participants.

Benefits October 22, 2014

Misunderstanding the Impact of a Savings Delay

October 22, 2014 (PLANSPONSOR.com) - One-third of middle class investors are just not saving for retirement, a study finds.
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According to the fifth annual Wells Fargo Middle Class Retirement study, 41% of middle class Americans between the ages of 50 and 59 are not currently saving for retirement, and 34% overall contribute nothing to a 401(k) or other retirement account.

People often say they’re too financially squeezed to save, says Joe Ready, director of institutional retirement and trust at Wells Fargo, but delaying retirement savings is not a great strategy and can have devastating consequences that participants do not realize.

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Sixty-eight percent of all respondents say saving for retirement is “harder than I anticipated.” The difficulty has caused more than half (55%) to say they plan to save “later” for retirement in order to “make up for not saving enough now.” Nearly six in 10 (59%) middle class Americans between the ages of 30 and 49 say they plan to save later to make up for missed retirement savings, and 27% are not currently contributing savings to a retirement plan or account. 

“People really underestimate what that does to their retirement savings,” Ready tells PLANSPONSOR.

Advisers might want to stress the importance of a written financial plan. “A big part of what advisers do is sit down and help you plan for retirement,” Ready says. The complexity of the plan can vary, but the data is clear that putting some type of formal plan into place helps workers save more consistently and at higher rates.

“Those with a written plan save a median of $250 each month, versus $100 a month by those without a plan, a difference of two and a half times,” Ready says. A written plan should have quantifiable data that the investor can measure against, and it can be as simple as the amount to save each month.

The study has both good news and bad, but Ready calls several data points from the study encouraging. “Overall, people aren’t saving enough, and that trend hasn’t changed,” he says. “It’s a big challenge.” However, Ready notes the effectiveness of saving through 401(k) plans has helped a majority of survey respondents save more than they feel they would have without access to a 401(k), calling the 85% of those who expressed this idea “a powerful statistic.”

The Difference a Plan Makes

Also positive are the two-thirds of employees in plans taking advantage of the full employer match, and the savings amount. On average, those with access to a plan save 10 times more than those who lack access.  

People are still on the low end of where they need to be, however, Ready says, and the amount saved dipped from the previous study, from $25,000 to $20,000. About a third (31%) of all respondents say they will not have enough money to “survive” in retirement, and this increases to nearly half (48%) of Americans in their 50s. Nineteen percent of all respondents have no retirement savings.  

Plan sponsors and plan participants alike value highly the benefit of the workplace-based retirement plan, Ready says, and it may be time for the pendulum to swing back more to the middle. “One of the best things we as a society can do is promote a shared responsibility,” he says. The movement from defined benefit to defined contribution needs to be tempered. All the responsibility cannot fall on one entity—company, individual or government—alone.

Regardless of the match, companies that sponsor a plan provide a valuable benefit that employees appreciate, Ready points out. “Whether continuing the incentive for people to save for retirement on a pretax basis or providing Social Security, which the middle class is counting on, the government has a role,” he says. “And the employee clearly has a role: You own your own outcome.”

Surprisingly, although different demographics may face different challenges, Ready feels the messaging does not need to vary greatly when plan sponsors and plan advisers tailor their education and communication efforts. The message is simple, he says: Just get people in the plan.

For early savers—those at the beginning of their careers—the best message is the power of compounded savings over time, Ready says. Then, participants need to take simple steps, perhaps conducting a financial inventory and finding that extra $50 to $100 per month to begin saving. In the mid-career stages, the messaging is about the same, he says, but may have slightly more urgency in the call to action. “Don’t delay,” he warns. “The only way they are going to make a reasonable retirement outcome is through saving.”

On behalf of Wells Fargo, Harris Poll conducted 1,001 telephone interviews between July 20 and August 25, of middle class Americans between the ages of 25 and 75, with a median household income of $63,000.

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