Participants June 9, 2015

Workers Value Overall Financial Education

Ninety-five percent of workers believe financial literacy is important, LIMRA says, but their takeaways can vary.
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While 95% of workers said financial literacy is important, only one-third (35%) feel they are moderately or extremely knowledgeable about financial products and services, a LIMRA study found. Only 28% indicated they are very confident in their abilities to make important financial decisions.

Just 17% of workers polled said they were “extremely satisfied” with financial literacy about retirement planning, while managing or reducing debt (32%), avoiding scams and identify theft (31%) and general budgeting (30%) all got higher marks.

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However, for the “satisfied” ranking, 56% of workers gave a thumbs up to education about retirement planning, more than expressed satisfaction with managing debt (47%), avoiding scams (31%) or budgeting (30%).

One reason for the divide, says Jenn Douglas, associate research director for LIMRA Developmental and Strategic Research, is the comparative vintage of the topics. “Education on retirement has been around for a while,” she tells PLANADVISER, “and debt reduction hasn’t been as prominent, so the newer topics get more attention.” Douglas notes that according to the study, satisfaction ratings with all the offerings are still in the 70% to 80% range.

The sheer number of workers being polled could also play a part, Douglas says. LIMRA surveyed 2,000 full-time employees of all ages, she points out, and because the research reflects an entire workforce with a range of generations, it will similarly reflect a range of interests. “The retirement plan might be very important to people in their 50s, but not to those in their 20s and 30s,” she says.

NEXT: Few have general financial education available.

The study found that nearly two in three workers have access to educational programs about their employee benefits, with 72% of those taking advantage of the program. Six in 10 workers have access to retirement planning help through their employers. The following programs are available to roughly one-quarter of employees: general budgeting, debt management or estate planning.

A majority of workers who took advantage of financial literacy offerings were satisfied with the financial education programs they attended, the study found. Workers who attended the debt management programs were more likely to be extremely satisfied with the course (32%)

Nearly half (49%) of interested employees want to use an online program for employer-sponsored education. One-on-one meetings with financial advisers, written materials (newsletters, pamphlets and workbooks), and seminars appealed to about one-third of workers who want information. 

“American workers are responsible for so many day-to-day financial decisions that can have a significant impact on their overall financial well-being for the rest of their lives,” Douglas notes. “Employers recognize that financial stress can impact an employee’s performance, and we are seeing more interest from employers in offering financial education to their workers to help them better manage their finances.”

LIMRA assessed full-time employees’ access to workplace-based financial education programs and whether they took advantage of those programs. A link to a graphic on the satisfaction with different financial education topics is here.

Participants June 9, 2015

Wells Fargo Data Shows Auto Features Help

Automatic enrollment and automatic asset allocation products are helping 401(k) participants save and diversify.
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The number of eligible employees participating in Wells Fargo-administered plans rose 13% between 2011 and 2015.

Wells Fargo says the increase in participation correlates to an increase in plan sponsors opting for automatic enrollment of their participants, which now stands at 40% of Wells Fargo-administered plans versus 30% in 2011.              

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The data shows increasing participation rates among younger employees, new hires and lower-earning workers over the past four years. Participation in 401(k) plans among Millennials has reached 55% compared to 45% in 2011. For newly hired eligible employees (meaning those who have reached the one-year mark of employment), participation has increased from 36% four years ago to 48% in 2015.  In addition, employees in a pay range of $20,000 to $40,000 in salary are participating at a rate of 59% versus 47% four years ago.

“We know that systematic, pre-tax savings and investing works. The first critical step along that journey is to get people in the plan,” says Joe Ready, head of Wells Fargo Institutional Retirement and Trust. “In addition, to see such gains among people who are historically the hardest to get saving for retirement is also quite encouraging.”

NEXT: Savings rates could be better.

Although participation rates are rising, the deferral rates are relatively flat in the four-year analysis, with 38% of participants saving a minimum of 10% of their salary (which may include employer match) in their 401(k) plan—a modest increase from 34% four years ago.  Twenty-eight percent of Millennials currently reach a total contribution of 10% of pay, compared to 35% of Gen X and 45% of Boomers.

“Participating in the plan is the first step, but what we really need to see is a more robust increase in how much people are saving,” says Ready.

Sixty-two percent of all active participants are taking full advantage of their employer match. When analyzed by generational groups, this breaks down to 54% of Millennials, 63% of Gen X, and 70% of Boomers who are contributing enough to capture their full company match.

The average 401(k) balance is $93,015—up from $69,802 four years ago, largely due to gains in the stock market.

The Roth 401(k) usage is creeping up—with 12% of participants contributing to a Roth 401(k) compared to 8% four years ago. Millennials are the most significant users of Roth, with 16% contributing to a Roth 401(k), versus 11% of Gen X and 7% of Boomers.

“The decision to contribute after-tax money to a Roth 401(k) is an intentional one, because people typically are not automatically enrolled into Roth 401(k) plans,” says Ready. “I am encouraged that the younger participant group is putting thought into what can be a tax diversification strategy when it comes time to take money out of plans in retirement.”

NEXT: Millennials are the most diversified.

Millennials are still the most diversified generation, and are making the biggest gains: 82% are meeting a minimum level of diversification—a minimum of two equity funds and a fixed income fund and less than 20% in employer stock—which is up from 72% four years ago. Gen X and Boomers have also seen strong gains in this category, with 78% and 75% respectively meeting the minimum level of diversification (compared to 70% and 68% four years ago).

Wells Fargo says this improved diversification is most likely due to the broader use of managed investment products, which continue to gain in popularity. Overall, 76% of participants use a managed product, up from 65% four years ago. Target-date funds in particular have seen strong growth, from 47% to 62% of participants having money invested in target-date options. When comparing by generation, 83% of Millennials, 75% of Gen X and 70% of Boomers use some type of managed product in their 401(k) plan.

In a review of data compiled from 2,036 companies where gender is indicated, there are also some noteworthy differences. Women participate in their 401(k) plans at a slightly higher rate than men: 65% to 62%. The number of women saving at least 10% of their salary is slightly lower: 38% of women vs. 40% of men contribute at least 10% of their salary, and 64% of men are taking full advantage of their company match, compared to 61% of women. Women use managed investment products more than men—77% of women compared to 74% of men—which might explain why they are better diversified. Eighty percent of women are meeting minimum diversification criteria compared to 78% of men.

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