The National Association of Retirement Plan Participants
(NARPP) is offering plan sponsors the opportunity to use its FELT study
questionnaire internally, with their employees.
NARPP’s participant FELT (Financial Empowerment, Literacy
and Trust) study examines the key drivers of engagement and savings rates of
participants. Specifically, the study measures these participant metrics:
Satisfaction
with and helpfulness of education program; and
Levels
of trust and confidence in their service provider.
In its first national FELT study in 2014, NARPP
interviewed more than 5,000 participants, representing a wide range of
demographics, employers and service providers. This study established that
trust in the service provider is a key driver of participant engagement. While
it is helpful to have a “big picture” view of all participants’ attitudes and
behaviors, NARPP says it is equally important for plan sponsors to have
specific data about their own employees.
NARPP has developed an easy, turnkey system that plan
sponsors can use with their employees. The results of the study would be only
for the plan sponsor and can be compared to national norms and used to measure
the impact of education programs and initiatives. The study will be available
for plan sponsor use in April.
“Participant-reported measures have to play a more central
role in determining the effectiveness of education and engagement programs,”
says Laurie Rowley of NARPP. “Without concrete data that examines all of the
challenges facing participants, we can only guess at the path to improving
outcomes.”
Sponsors and plan service providers seeking more information
can contact Laurie Rowley at Laurie.Rowley@NARPP.org or
visit the NARPP website, www.NARPP.org.
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Each Generation Has Financial Weaknesses to Address
Holistic
financial education can help different generations in the workforce address
their unique vulnerabilities that can derail plans for retirement.
Millennials, Generation X and Baby Boomers each have
distinct strengths and weaknesses when it comes to managing and saving money,
research from Financial Finesse shows.
While Millennial employees (younger than age 30) tend to
have the lowest average financial wellness scores as a whole, they continue to
slightly edge out Generation X in several areas of money management, Financial
Finesse found. However, Millennials may have been the most impacted
psychologically from the Great Recession. From the way they manage their money
to the way they invest, the focus is more on not losing money than growing
their wealth for the long term.
Gregory Ward, director of the Financial Finesse Think Tank
in El Segundo, California, says they see evidence of this in calls to the
firm’s live helpline. “When we look at the types of calls we get from
Millennials and compare this to outside research, we get a sense that
Millennials are very concerned about student loan debt, and they lack trust in
the financial industry as a whole,” he tells PLANADVISER. “They are more
concerned about immediate needs and debt, and they invest conservatively. They
are focused on maintaining the money they have and doing the best with it,
while other generations are more concerned with investing and making money
grow.”
The research found Millennials’ most common vulnerability is
not saving enough for retirement. The dwindling availability of traditional
pension plans and potential cuts in government entitlement programs can make
retirement preparedness even more challenging for Millennials than for older
generations. However, they lag the older generations in contributing to their
employers’ retirement plans (83%) and running a retirement calculation to see
if they’re on track (27%).
Financial Finesse’s 2014 Generational Research report says
part of the problem is that Millennials are the only generation not to have
retirement planning as their top priority. Instead, it placed third (56%)
behind managing cash flow (76%) and getting out of debt (59%).
Ward says automatic enrollment and defaulting Millennials
into target-date funds (TDFs) is a good thing. Millennials feel too
conservative though they have many years to save and invest. “The idea of being
too aggressive doesn’t settle with them, but when talking about something as
far away as retirement, it makes sense to have more aggressive investments,” he
says. However, if Millennials don’t have the mindset that their investments are
for the long-term future, there’s a danger they will panic with the next market
correction.
According to Ward, plan sponsors should recognize that
Millennials grew up in a technology-rich environment, so incorporating
gamification into financial education will probably result in more uptake and
an enhanced learning environment. And, since Millennials like to talk to each
other and get opinions, social media should be used in education.
As for Generation X (ages 30 to 54), competing financial priorities
make them the most financially at-risk group. As Generation X is more likely to
own a home (69% vs. 23% of Millennials), and they are the generation most
likely to have minor children of their own to take care of (57% vs. 26% of
Millennials), not having enough emergency savings is a top vulnerability.
The research found only 17% of Generation X are on track to
reach income replacement goals in retirement, yet 23% are putting money into
529 college savings plans. Ward says parents should prioritize and recognize
that, based on their financial resources, they may have to sacrifice some
children’s activities.
He notes that Generation X is a very independent generation;
they grew up in a time without “helicopter” moms. They don’t necessarily want
to be told what to do, but they want to be able to get what they need when they
need it. Plan sponsors should offer do-it-yourself tools, such as advice
services they may sign up for if they want, assessment tools or online
education.
Financial Finesse found only about three in 10 Baby Boomers
feel confident they are prepared for retirement. Only about half reported they
have run calculators to assess their preparedness.
Ward says Baby Boomers who call the Financial Finesse helpline often ask if they have enough money to last the rest of their life. They
have a perpetual feeling of inadequacy about their retirement savings, but that
doesn’t mean they aren’t prepared. It may mean they haven’t used resources to
assess their readiness or talked to an adviser.
Baby Boomers are also unsure of decumulation strategies for
their retirement savings and when to take Social Security, and their plans for
retirement may not prepare them for a major event. The research found Baby
Boomers are, overall, the most financially secure, but they face an impending
health care crisis due to longevity and inadequate insurance planning. Only 16%
of Baby Boomers reported having long-term care insurance, despite estimates
from The U.S. Department of Health and Human Services that 70% will require
some level of long-term care in retirement.
Ward says plan sponsors can provide financial education for
Baby Boomers’ transition from working years to retirement. It should include
discussions about distribution strategies, Social Security and estate planning.
He adds that annuities have gotten a bad rap, but it appeals to Baby Boomers to
take savings and convert it to a monthly income for life—to not have their
savings exposed to potential volatility. “Plan sponsors should consider
offering annuities within their retirement plans. That is usually a
better-priced option than if employees went to the market on their own, and it
will enhance the likelihood that retirees will enjoy a comfortable retirement,”
Ward says.
According to Ward, employers and the retirement industry are
starting to align with the need for holistic financial wellness education for
all generations. It can change employee retirement savings behaviors, result in
less absenteeism and less wage garnishment due to financial issues, and
decrease the number of retirement plan loans taken.
Financial Finesse expects to see double digit growth in plan
sponsors offering holistic financial wellness in the next few years.