Data & Research July 11, 2012

Automatic Features Leading to Greater Retirement Readiness

Retirement plan sponsors say automatic features are increasing employees’ retirement readiness, according to a study from Lincoln Financial Group and Retirement Made Simpler.
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The study found 94% of plan sponsors recognize the success of automatic features, including automatic enrollment, automatic escalation and qualified default investment alternatives (QDIAs), in helping them address their plan-related goals and say these features drive higher participation and deferral rates along with better investment performance.   

Eighty-five percent of plan sponsors reported that automatic features are especially effective in helping participants who consider themselves less educated on retirement matters. Ninety-seven percent of plan sponsors who have adopted the bundle of automatic enrollment, automatic escalation and QDIA say the advantages outweigh any perceived disadvantages.   

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Plans with automatic escalation experienced deferral rates of 8% or higher compared to the average deferral rates of 4% or less reported by the Plan Sponsor Council of America (PSCA) for the majority of plans.  

 

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However, the Lincoln Retirement Power study found that while new communication channels have emerged since the advent of auto features, they have not kept pace with cultural and generational shifts or the evolution of plan design. Only 51% of sponsors say they offer customized communication and only half (50%) have revamped communication materials since the introduction of auto features.   

Plan sponsors agree that employee communication must shift significantly when automatic features are adopted. That means moving away from education that is technical in nature - such as how to enroll or the investments offered - to engaging participants in a more meaningful discussion about their individual savings behaviors and strategies such as their future monthly retirement income, spending power and projected retirement lifestyle.  

“The strong combination of auto solutions plus outcomes-focused communication has the power to motivate people, in a positive way, to take an active role in their retirement readiness,” said Chuck Cornelio, president, Retirement Plan Services, Lincoln Financial Group.  

More information on the Retirement Power study is here.

 

Data & Research July 11, 2012

Face-to-Face Meetings May Boost Retirement Savings

Employees who have one-on-one sessions with retirement professionals more likely participate in retirement plans and save more than those who do not.
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The Principal Financial Group found the higher deferral rate combined with the commitment to increase savings among those who attended one-on-one meetings could mean an additional $242,000 at retirement, based solely on employee deferrals. That could translate into an extra $905 more a month in retirement income, which is 69% higher than participants who did not have one-on-one education.

“We know from face-to-face educational meetings that retirement savers benefit from hearing a person explain how the retirement plan works rather than having to shuffle through documents by themselves,” said Barrie Christman, vice president of individual investor services at The Principal. “Take it a step further with personalized one-on-one meetings on company time, and significantly higher numbers of participants are taking actions that can help get them to the 11% to 15% contribution range—including employer match—that we believe is needed over the course of a career to have sufficient retirement income.”

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The analysis of participants covered by retirement plans through The Principal who attended a one-on-one meeting in 2011 found that 92% agreed to take a positive action and 80% completed the action. The top actions were to increase savings rates now and commit to continue to increase them in the future.

On average, deferral rates were 9% higher among one-on-one participants compared with those who attended a group educational meeting.

Nearly ten times as many one-on-one participants (19%) chose to automatically increase their retirement plan contribution as those who participated in a group educational meeting (2%). On average, one-on-one participants chose to increase their contributions by 1% each year for an average of five years.

 

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