Retirement Plan Sponsors Should Consider Unique Needs of "Generation DC"

The personality and preferences of, say, Millennials or Generation X or Baby Boomers do not translate into real differences in how these groups think about retirement savings, a survey by State Street Global Advisors (SSGA) suggests.

Instead, defined contribution (DC) plan sponsors should consider Generation DC, which comprises members of Gen X and Millennials: the first two populations using DC plans as their predominant workplace retirement savings plan.

“We think of these as two different categories,” says Fredrik Axsater, senior managing director and head of Global Defined Contribution at SSGA, “but there are a lot of commonalities across the two groups.”

Where retirement plan participants are in the retirement savings line is more important than generational descriptions. “What are the key inflection points, what is their life stage?” he tells PLANSPONSOR. “It’s interesting that so many young investors just entering the workforce have a very high turnover. Why are they moving from one company to another? Forty-six percent said they change jobs for a job that is more consistent with their values and their mission in life.” When it comes to messaging about retirement savings, Axsater says, that is good information for a plan sponsor to know.

“With older participants, we can go into more detail about retirement topics, because these investors score higher on financial literacy than younger investors,” he says. That more shaded detail allows plan sponsors to help participants in their 40s and 50s figure out where they are in retirement savings, and whether they can safely retire when they want.

Jack VanDerhei, the research director of the Employee Benefit Research Institute (EBRI), says that if DC plan sponsors with auto-enrollment in the plan do just one thing, it would be to message participants that if they stay at the default auto enrollment rate, usually 3%, they will not be on track to retire successfully.

“That’s the top thing that’s most important right now,” he tells PLANSPONSOR. “I would say the default provisions in the plan in terms of contribution shouldn’t be considered sufficient. “People who are auto enrolled at the default rate need to do an evaluation on their own or with a professional to figure out what their contribution should be. If they’re just defaulting at 3% and leaving (the rate) there, the onus is on them.”

Taken as a whole, the members of the entire generation have a number of traits in common. For example, the majority of the group (83%) say saving for retirement is a priority. They seem to have an understanding of longevity risk, with 73% saying that compared with previous generations, they are going to live longer. They like auto features in their workplace DC plans: 69% say it is OK if their employer increases their savings by 1% a year.

Plan sponsors should look at two segments—those ages 22 to 25, just entering the workforce, and those ages 40 to 45 and up who start to have retirement in their sights—to plan effective engagement and communications.

Even with auto enrollment in the plan, SSGA says, plan sponsors can look to life stages to develop more effective engagement strategies. Suggestions range from rethinking onboarding to simplifying the message and connecting with employees, even during an auto enrollment. Engage with younger participants at least once a year with a simple, three-point message: Start to save early, save adequately and diversify assets. Use technology to nudge participants of all ages, but don’t forget about human guidance altogether.

Age and experience count, SSGA says in its survey. Younger participants, ages 22 to 25, are most likely to admit they aren’t sure if they are saving enough for retirement. They need help, and they welcome it from multiple sources. Most (71%) said an app would help manage their retirement savings, and 59% want assistance from a human source at least once a year. Despite the stereotype that Millennials always choose tech over human touch, survey respondents ages 22 to 25 were the most likely to say they would like annual in-person intervention. In fact, 59% of this age group said they feel technology isn’t really going to help as much as meeting with someone in person.

Those in their 40s are thinking seriously about retirement and have accumulated more knowledge and experience to help better manage their savings. Less than one-third of plan participants older than age 45 might still have trouble with investing (29%)—a steep drop compared with Generation DC overall (45%). These older members also scored highest on seven basic financial literacy questions.

The survey report encourages plan sponsors not to wait to engage participants in detailed retirement planning discussions at age 50 or 55. It is even better to start at age 45 to take advantage of the growing, organic interest in retirement-related topics that participants have at that age.

SSGA’s DC Investor survey was fielded with Boston Research Technologies, an independent marketing research firm  in October 2015 using a panel of 1,500 U.S. workers, ages 22 to 50, who were employed on at least a part-time basis and offered a DC plan by their employer. More information can be found here.