Data and Research November 17, 2016

Scorecard Finds Increase in Plan Engagement Among Millennials

A new report by Bank of America Merrill Lynch credits Millennials to the increase in employee enrollment and contribution in retirement savings plans.  

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As 401(k) plan engagement continue to rise, so does participation among Millennials. The “Plan Wellness Scorecard,” a recent report by Bank of America Merrill Lynch, finds that among the 24% increase in employees that enrolled and contributed to their company’s retirement savings plan during the first half of 2016, Millennial participants (those aged 21 to 34) produced more contribution rates than any other age group.

The report highlights automated financial benefit plan features as key reasons for the upsurge, with 46% of new enrollments generated by simplified enrollment strategies, such as automatic enrollment or Express Enrollment. The study reports auto-enrollment has increased 33% since 2015, while Express Enrollment has risen 42%. Higher auto-enrollment default rates have also gained participants (up 41% since 2016), in addition to auto-increase (up 153% since 2012).

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While included in the same generation, the report reveals unique and dissimilar savings behaviors among older (ages 28 to 34) and younger (ages 21 to 27) Millennials. For example, older Millennials are increasingly more likely to participate in their employer’s retirement savings plan than younger ones, at 60% versus 38%, respectively. Once a plan features auto-enrollment, however, participation in younger Millennials jumps to 78%, versus 88% of the age group’s older members.

“We’re continuing to see Millennials take control of their finances and be more proactive with retirement as they recognize the implications of living longer as well as the benefits of saving early,” says John Quinn, head of Institutional Product and Platform Management at Bank of America Merrill Lynch. “Having the right plan design features leveraged by engagement practices can shape employees’ long-term investment strategies, as well as improve participation among younger generations.”

In order to surge engagement and plan participation, the report encourages plan sponsors to adopt simpler processes including auto-enrollment and auto-default for all employees, not just limited to new hires; apply auto-increase features to help workers grow savings over time; and team with plan providers to offer a variety of resources to employees, such as offline and digital enrollment and account management tools. In fact, mobile features have helped drive engagement with Millennials, as over half (55%) of all mobile enrollments have been completed by participants between ages 21 to 34.  

More information on the scorecard can be found here.

Compliance November 17, 2016

Bill Would Fix Closed DB Plan Nondiscrimination Issues

The legislation would amend the nondiscrimination rules to protect older workers in plans that have been closed or frozen.
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U.S. Senators Ben Cardin (D-Maryland) and Rob Portman (R-Ohio), both members of the Senate Finance Committee, and U.S. Representatives Pat Tiberi (R-Ohio) and Richard E. Neal (D-Massachusetts), both members of the House Ways & Means Committee, introduced updated legislation designed to protect the retirement security of many American workers. 

The Retirement Security Preservation Act of 2016 (RSPA) amends the nondiscrimination rules that apply to qualified retirement plans to protect older, longer-service participants whose defined benefit (DB) plans have been closed or frozen. The bill builds on previous legislation and regulatory work to address this issue, and was approved unanimously by the Senate Finance Committee as part of a retirement-related legislative package in September.

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The legislators explain that over time, existing employees in the closed plan typically build seniority and become more highly compensated than younger, newer employees entering a defined contribution (DC) plan. Because the grandfathered group in the closed plan generally becomes more highly compensated, closed plans almost always end up inadvertently violating the Internal Revenue Internal Revenue Service (IRS) nondiscrimination testing rules.

This clearly is not the intended effect of the nondiscrimination rules, which were written to strengthen retirement security, rather than to force many older employees into different types of plans that may not provide enough time to accumulate sufficient benefits before retirement, the legislators say.

The RSPA addresses the problem by amending the nondiscrimination rules to protect older workers in plans that have been closed or frozen. The bill also contains anti-abuse rules related to closed and frozen plans. Treasury has proposed regulations that partially address these issues, but only for a certain subset of affected plans. The RSPA incorporates elements of the Treasury regulations and provides targeted relief to plans who are not be able to take advantage of the Treasury regulations. 

“This measure will help safeguard the retirement security of hundreds of thousands of working families who are counting on their pension benefits in their retirement,” Portman says. “There is strong bipartisan support for this measure in both the House and Senate, and both chambers should pass it quickly so it can be signed into law.”

“This common sense fix will go a long way to protect retirement and pension plans for older Americans,” says Tiberi. “The Retirement Security Preservation Act would give certainty to employers and prevent their longer-service employees from unfairly losing their pension benefits due to the IRS’s nondiscrimination rules.”

A summary of the bill can be found here.  Bill text can be downloaded here.

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