Participants June 5, 2015

PSNC 2015: What Participants Really Want

Looking for research-backed insights about retirement plan participant decisionmaking? We’ve got them.
Reported by

In a presentation closing the 10th annual PLANSPONSOR National Conference in Chicago, Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR, outlined key findings from this year’s PLANSPONSOR Participant Survey.  

Data from the survey was presented in the April 2015 issue of PLANSPONSOR, but the presentation at PSNC included new cuts of the data that show clearly what participants want and expect from their plan sponsors, advisers and service providers. The sample is comprised of workers age 23 and older—65% of whom actively participate in a workplace retirement plan. Eleven percent of the sample has access to a plan but does not currently contribute money, and one in three have more than 10 years of tenure at their current employer.

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

Overall, the survey data shows a scant 35% of individuals are confident or very confident that they will achieve a secure retirement. The figure is a little better, at 41%, for active participants age 50 and older. Not surprisingly, only 25% of those lacking access to a plan at work are confident they’ll achieve a secure retirement.

The survey finds 76% of people who report being confident or very confident about retirement have $50,000 or more saved across all retirement accounts. This confidence is a good thing for the 22% in this group who have more than $500,000 saved—but overall the figure denotes dangerous overconfidence, as a single year’s health expenses in retirement average around $43,000 per year.

As Cooke Mintzer observed, “many of those people who report feeling confident are feeling confident at lower savings levels than we would like.”

She suggested one solution would be to frame savings as lifetime income, rather than a lump sum. “When they see $50,000 is only going to translate to a couple hundred bucks a month or less in retirement income, it could be a valuable reality check that shows they’re not really on track.”

NEXT: Employees cite stress across the board

In the face of savings hurdles, a strong majority of individuals in the survey (76%) reported at least mild financial stress, and 48% said their stress is moderate or severe. Nearly 32% are focused on paying off debt—including many in their 40s, 50s and even 60s.

This helps to explain the 51% of individuals who reported they want more guidance related to financial planning and financial wellness supplied by their employer. Thirty-eight percent want workplace training about investing basics and strategies, while 35% asked for help with saving and budgeting.

“People commonly reported that they want guidance about how much they should be saving—they want a specific number or percentage of income,” Cooke Mintzer noted. “As an industry, we’ve avoided that total number conversation. Only in the last two or three years has there been mass discussion of getting to a savings rate of 10% or total contribution with employer match near 12% or 15%. Many participants said they have no idea what goal they should be progressing towards.”

Drilling deeper into the desire for advice and guidance, 46% would prefer advice delivered through online tools or automated services. Importantly, only 26% said they would pay a premium for personalized and highly customized advice versus getting generic advice that is free.

NEXT: Plan sponsors play critical role in confidence

Highlighting the critical role plan sponsors play—especially in setting plan design—there were strong peaks in the occurrence of participant contribution rates around 3%, 5%, 6%, 10% and 15% of salary. As Cooke Mintzer explained, these are the numbers most commonly used by plan sponsors as the default auto-enrollment rate.

“The numbers clearly show plan sponsors have a lot of power in their hands to get people to save what they should be saving,” she said.

Asked how they arrived at their deferral rate, more than one-quarter of people in the survey said they did it to get the whole match. Nearly 20% are “trying to consistently hit a targeted savings level,” i.e., saving $100 per paycheck or $3,000 per year.

“Unfortunately, stretching the match is not always the answer here,” Cooke Mintzer said. “We do see a significant drop off in willingness to save to get the full match when you push it up to, say, 25% of the first 12% of salary deferred by the employee, rather than 50% of the first 6% of salary.”

One heartening statistic for plan sponsors: participants largely hold themselves accountable for failure to be better prepared for retirement. More than 75% of employees said their employer’s plan is excellent, very good, or good—and another 16% on top of that say their plan is fair, leaving just 2% giving their employer-sponsored retirement benefit a poor rating. Two percent said they were unsure. 

Administration June 5, 2015

PSNC 2015: Plan Transitions

What are the best practices when your plan starts the process of transitioning to a new recordkeeper?
Reported by

For his firm, which has a high concentration of 403(b) plan clients, plan transitions to a new recordkeeper follow from a request for proposals (RFP), said Michael Sanders, principal, of Cammack Retirement Group, at the 2015 PLANSPONSOR National Conference in Chicago. Relevant information has to be communicated effectively—and according to the plan’s specific goals—from the start of that process. What will the change mean for participants and the plan—is it a big deal, a non-event, an upgrade? Establish that early, he said, and design from the outset what it will look like.

There are a few ways to implement plan change. According to Jason Chepenik, managing partner, Chepenik Financial, a plan transition follows from the decision to “blow things up and start all over again.” To explain what that means for participants, he suggests hosting mandatory meetings, but only after the plan goes live. The “blackout” period is the most stressful time for participants, he said. It usually lasts less than two weeks, he said, but plan sponsors are required to give a 30-day notice. Plan sponsors should wait until after participants have had a chance to see the changes and interact with the plan before hosting a Q-and-A.

Get more!  Sign up for PLANSPONSOR newsletters.

For these meetings, find out who the population’s “champion” is. If everyone is going to turn to that person for his input, get him or her on your side to be an advocate, Chepenik said. Also have plan leaders speak about why they enrolled and what their plans are, he suggested, Give your participants something new to focus on, and keep their attention on the positive changes, such as the addition of a Roth option, for example. This is not the time to stretch your match, he warned, but putting in automatic features should go over well. Make the most of this opportunity to “right the ship,” he said, and don’t over-communicate how to opt out.

In general, he pointed out, most people don’t know a lot about the plan, but sponsors can still protect themselves by hosting meetings to discuss active vs. passive and “to” vs. “through” investment decisions, and show how those decisions were made. Avoiding or going through with a plan transition is “not about upsetting people,” Chepenik said, but getting as many people as possible on the path to success. Less than 5% will want to opt out, he predicted, but those that do can make that decision for themselves, while the majority of your population ends up in a stronger retirement plan. “You see a lot more thank-yous than negatives.”

Participants likely do not know what they’re paying, Sanders added. Show people that you’re saving them money, and include projections over time, to direct the tone of the conversation. And make sure to use your own branding, not your vendor’s.

NEXT: Potential pitfalls. 

Almost every time his firm has the plan transition conversation, Sanders said, it starts with the client saying “this is not for us.” Ultimately, though, they will come around. “You have to treat these things as projects,” he said, and set up meetings and establish a commitment to the process from the outset.

Also, you have to plan for things going wrong. “Discuss the major risks associated with not making decisions” when obstacles come up, he continued. A lack of upfront planning and not having a project plan in place can lead to major setbacks along the way.

Timing is also a factor, Chepenik said. The most common time to do a transition is January 1, which can make that the worst time for a smaller plan. Vendors are far better than they used to be, he said, but an August date may be better for someone who needs top-talent attention that might otherwise be directed to larger projects. 

«