Participants October 8, 2015

Auto Features Put Millennials on Path to Retirement Readiness

Vanguard finds that the recession of 2008/2009 did not derail Millennial retirement savers.
Reported by

Millennials saving for retirement are bucking reports of savings insufficiency and equity aversion, according to a white paper published by Vanguard researchers.

“The auto savings generation: Steering millennials to better retirement outcomes” finds that participation rates, saving rates, and equity allocations for Millennial participants (ages 18 to 34) have been on the upswing over the last decade in defined contribution (DC) plans. Vanguard attributes the advent of automatic plan design features and the increasing adoption of target-date funds for putting Millennials on the right path to retirement readiness.                             

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Millennials’ participation in 401(k) plans in 2013 was higher than that of the equivalent age cohort in 2003, in large part driven by automatic enrollment plan design. In Vanguard plans with an automatic enrollment feature, 87% of Millennials participated in their workplace retirement plan—an increase of more than 70% compared with 10 years prior. Vanguard notes that Millennial investors are the first generation with access to automatic plan features from the beginning of their working years.

Vanguard reported an improvement in total saving rates across all generational cohorts in 2013, with Millennial investors demonstrating the strongest gains. The average Millennial 401(k) deferral rate was 3.6% in voluntary enrollment plans and 4.2% in automatic enrollment plans—a jump from the 3.1% average contribution rate in 2003 for individuals ages 18 to 34. In plans that offer a company match, average total contribution rates for Millennials climbed to 5.1% in voluntary enrollment plans and 6.6% in automatic enrollment plans in 2013—up from a 4.2% average contribution rate for individuals ages 18 to 34 in 2003.

NEXT: Target-date funds improve equity allocations

Vanguard says automatic escalation savings features are likely influencing the improvement in savings rates for Millennials. Many Vanguard plan sponsors have introduced this option as a complement to automatic enrollment, with 70% of plans offering both features as a default. In automatic enrollment plans, nearly two-thirds of Millennials were also enrolled in an automatic increase feature. However, even in voluntary enrollment plans, Millennial participants were more likely to sign up for automatic annual deferral increases.                  

Despite experiencing two significant bear markets during their lifetimes, Millennials’ equity allocations also increased over the 10-year period Vanguard analyzed. Median equity allocations rose to 89% in 2013, up from 82% in 2003, primarily due to climbing adoption of target-date funds. Vanguard data shows target-date fund usage has increased dramatically over the last decade. In 2013, 64% of Millennials in automatic enrollment plans invested in a single target-date fund, in addition to 23% in voluntary plans.

In addition, the study found Millennials were more than twice as likely as Baby Boomers to invest in an all-in-one investment option (e.g. a target-date, target-risk, or traditional balanced fund).

“Automatic plan design features and the rise of target-date funds are reshaping retirement plan outcomes for all generations,” says Jean Young, author of the paper and a senior research analyst with the Vanguard Center for Retirement Research. “However, these innovations are by far having the greatest—and most positive—impact on the retirement savings of Millennials.”

Benefits October 8, 2015

Financial Distraction Confuses Benefits Decisions

Finances and benefits continue to bewilder American workers, and many would like online assistance.
Reported by

Four in 10 Americans admit knowing little or nothing about their employee benefits, according to the 2015 MassMutual Employee Benefits Security Study. Millennials, Gen Xers, parents and low-income Americans find it difficult to manage finances, and many say issues with personal finance distract them while they’re at work.  

Most workers understand the importance of their personal finances and employee benefits. Basic knowledge of savings accounts and credit card balances are understandable, and most know which benefits are most important to them. However, employees indicate they are struggling to know whether they are on track to retire comfortably or how much money they should be spending on their employer-provided benefits.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

On the surface, most people seemingly have their financial house in order, saying they prioritize understanding their personal finances (77%), having enough medical insurance (74%) and being on track to retire comfortably (65%), MassMutual finds. Yet 38% say they know little or nothing about their employer-provided benefits such as health care, life insurance, 401(k) retirement plans and other benefits. Two in five respondents (42%) say they are clueless about whether or not they are on track to retire comfortably, the study found.

“Personal finances continue to bedevil many Americans, especially when it comes to understanding and making the most of their employee benefits,” says Elaine Sarsynski, executive vice president of MassMutual Retirement Services and Worksite Insurance. “MassMutual’s research finds that many people say they need help to better understand their personal finances, but only one in five people actually use an online financial tool for assistance.”

NEXT: Distracted by finances means less satisfaction with benefits

While many people assert they do just fine managing their finances, 37% find doing so "somewhat" or “very difficult,” and 40% say personal financial problems are a distraction at work. Some groups find personal finance more difficult than others, including Millennials (58%), parents (50%), Generation X (47%), women (44%) and those with annual incomes of $50,000 or less (44%). Baby Boomers were the least likely to encounter difficulty in managing their finances (28%) or being distracted at work by financial issues (24%).

Millennials (82%), parents (80%) and Gen Xers (78%) are especially interested in using an online financial tool, according to the study. Overall, one in three respondents (32%) would be more likely to enroll in their employee benefits if they could use an online tool to help them figure out their needs.

Workers who are distracted by their finances spend more time on their finances and their employer-provided benefits, MassMutual finds. These employees also say it is much more difficult to manage their finances. Those who are distracted are also less satisfied with their benefits. The employees most distracted by their finances are:

  • Millennials (age 18-34) 58%;
  • Hispanics (51%); and
  • Parents (50%).

Employees think their personal finances and health are most important to them, ahead of even being able to retire comfortably. Other issues, such as keeping up with news, politics, and sports and entertainment, are not as important to employees. The following factors were rated “very important” by survey respondents:

  • Understanding their personal finances (77%);
  • Being on track to retire comfortably (65%); and
  • Eating a healthy diet (48%).

The 2015 MassMutual Employee Benefits Security Study was fielded by KRC Research as part of an initiative to help educate workers about their employer-provided benefits and enable them to make better choices in selecting health care coverage, insurance protection, retirement savings and other benefits. The study focused on 1,517 working Americans who were at least age 18 in a wide variety of jobs and industries. The study can be downloaded here.   

«