In Practice August 28, 2008

Gen X, Y Support Autoenrollment

An overwhelming 85% of surveyed members of Generations X and Y think it’s a good idea for employers to voluntarily enroll workers in a retirement savings plan, according to a new study.
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Younger workers are in favor of the do-it-for-me approach. According to a study from the American Savings Education Council (a program of the Employee Benefits Research Institute), most of the younger generations (ages 19 to 39) favor employers taking a more active role in savings. Gen Xers (in this study, born between 1968 and 1979) are stronger supporters than Gen Yers (49% of those in Gen X think autoenrollment is a very good idea, compared with 40% of Gen Yers).

Advisers should be aware that a significant minority of Gen X and Y are pretty clueless about retirement savings. For instance, 13% overall (19% of Gen Yers) are not sure whether they are covered by a traditional pension plan. On the defined contribution side, 10% overall (17% of Gen Yers) do not know whether or not they are eligible for their company’s 401(k) or 403(b) plan, according to the study.

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While the study shows that many in Gen X and Y have started thinking about retirement (almost half have at 42%), it has not necessarily translated into savings. Gen Xers (45%) are more likely than Gen Yers (27%) to have personally started saving for retirement.

Parents, Peers, Professionals, Periodicals …

Gen X and Y report many ways in which they receive financial information. More than half of Gen Y and X turn to a financial professional for advice.

However, even more turn to their parents or the Internet. According to the study, 70% listed parents as a major or minor source of advice, and almost the same number (69%) listed the Internet. Also, don’t underestimate the power of peers: Friends and peers are also at least a minor source of advice for 60% of people in Generation X and Y—but not likely to be the primary source.

What might be interesting for advisers trying to reach these groups of participants is that these younger generations are certainly likely to receive information online, but also obviously just as receptive to human interaction in order to receive financial advice.

Slight more than half of both generations report using a financial professional to obtain advice, with 54% citing a financial professional as a major or minor source of advice, according to the study. One-quarter report a financial professional as a major source of advice (23%), and 20% site a professional as their primary source.

Members of Gen X are more likely than Gen Y to cite a financial professional as a major source of advice (27% of Gen X vs. 18% of Gen Y), the study reports. And as can be expected, those with a higher education and income are more likely to use a financial professional as a primary source of advice.

The employer is definitely a source of information for Gen X and Y as well. About half (53%) cite their or their spouse’s employer as at least a minor source of financial advice, but only a small number (7%) cite employers as a primary source. The media and other relatives also received significant percentages as sources of information.

The full Preparing For Their Future study is available here.

 

 

See also:Gens X and Y Eyeing Retirement Savings Needs, Four Generations Agree: We Need More Advice, Y Not?, Talking to Twentysomethings

 

 

Perspectives August 27, 2008

Perspective: Helping Your Plan Sponsors Avoid the “Cash Out″

It’s painful to watch a friend make a life-altering mistake.
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To a plan sponsor, a terminating employee is often someone they’ve worked with for years, attended holiday parties, met their families and seen them go thorough good times and bad. Plan sponsors are also well aware of the consequences of cashing out a 401(k). Immediate taxes, fees and penalties are high, not to the mention the long-term significant loss of compound interest. Consequences aside, the number of cash outs continues to rise. According to one study, as many as 45% of people cash out their 401(k) when leaving their companies.

For your plans sponsors it’s often a heavy burden to bear, watching terminated employees sell their futures short to ease the short-term pain of leaving a job. Sponsors know that even if the terminated employee has every intention of re-investing in retirement, few will gain substantial traction in that effort.

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A recent study of 395 plan sponsors1 found that employee education and investment knowledge were among the most important services an adviser can provide. Assisting your plan sponsors in reducing cash outs affords you the opportunity to endear your firm to the plan sponsor and differentiate your practice. This can often be accomplished with little or no cost to you by partnering with a company that provides a comprehensive education and rollover program for employees in transition. In researching potential partners, it’s important you find a company that will:

  • Equip participants with the tools they need to make intelligent decisions. For example, a cash-out calculator is designed to educate 401(k) plan participants who are considering cashing out their accounts. It can provide a dramatic visualization of how withdrawing a few thousand dollars today can mean having tens (or hundreds) of thousands of dollars less at retirement.
  • Encourage continued retirement savings by explaining the ramifications of cashing out. Constant and repeated education is key. Because the litigation landscape has changed dramatically this year, with rulings that allow individual plan participants to sue for breach of fiduciary responsibility, it’s prudent to try to mitigate any potential claims through mailings that encourage and equip the participant to take control of their retirement.
  • Extend the participants ability to speak with a knowledgeable expert to answer questions. Make sure that the company has a fully staffed retirement center (or similar) with personnel who are specially trained to help the “unadvised’ investor understand retirement options. Ensure that retirement center personnel offer independent retirement solutions and that their motivation is focused on minimizing cash-outs and keeping these participants invested in retirement.

In short, it’s all about strengthening the relationship with your plan sponsors by helping the terminated participant. The sponsor better serves their terminated employees by providing expert, unbiased education and guidance (at no cost to them). ALL participants, regardless of account size, receive the service they’re entitled to (and are less likely to cash out). And you receive the goodwill and loyalty of the plan sponsor by easing the pain they feel from the ever-increasing number of cash outs. With this approach everyone wins.

Spencer Williams is President and CEO of RolloverSystems, an independent provider of rollover services. Over his career, Spencer’s experience spans starting, building and leading businesses in the financial services industry. Prior to joining RolloverSystems, Spencer served in numerous roles with MassMutual, including founder and CEO of Persumma Financial, LLC (a MassMutual Financial Group company) and as a leader in creating and building the company’s retirement income and rollover IRA lines of business.

© 2008 RolloverSystems, Inc. This article is protected by copyright law. Any redistribution or commercial use in whole or in part is strictly prohibited without the express written consent of RolloverSystems, Inc. The information provided herein is for educational and informational purposes only and should not be considered investment advice.

1 “Growing a 401(k) Practice from the Inside Out,’ Fidelity Investments Institutional Services Company, Inc., March 2008

1 “Growing a 401(k) Practice from the Inside Out,’ Fidelity Investments Institutional Services Company, Inc., March 2008

 

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