Data & Research May 12, 2015

Intuitive Design Boosts 401(k) Wellness Scores

An even simpler enrollment process helped drive up retirement plan participation rates and positive participant behaviors, according to Bank of America Merrill Lynch.
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Automation, mobility and advice are strengthening employee participation in workplace benefit plans, according to the 2015 Bank of America Merrill Lynch 401(k) Wellness Scorecard, with nearly two-thirds more Millennials participating in a 401(k) plan in 2014 than in the previous year.

The previous scorecard showed an energized attitude about saving, particularly among Millennials, and a rise in the use of mobile access, auto features in 401(k) plans and more personalized advice.

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Plan sponsors are increasingly interested in helping their employees make informed financial decisions, says Daniel Holtzman, managing director and head of institutional retirement products at Bank of America Merrill Lynch. In response, providers seek ways to support retirement plan goals, such as the bank’s Express Enrollment.

The program is a way to onboard participants quickly and easily, with a stripped-down number of questions. “It gets to the essence of how to get someone to sign on,” Holtzman tells PLANADVISER, with direct questions about what percentage to contribute. “The percentage of people who complete the process is much higher than through a traditional enrollment, and it’s a win-win for companies looking to provide for the financial wellness of their participants.”

The scorecard shows a 119% increase in employer adoption of the Express Enrollment program, and a similar reception from participants. Seventy-nine percent of employees enrolled through Express Enrollment, compared with 55% of those that were offered a traditional enrollment method.

The BofA Scorecard found other examples of simplification leading to increases in participation rates, including:

  • 64% of 401(k) plans combined auto enrollment and auto increase, a 25% rise compared with one year earlier;  
  • Auto enrollment drove participation rates that were 32% higher;
  • 46% more participants scheduled auto increases; and
  • 78% of participants who made a change to their plan made a positive one, either starting or boosting contributions.

The scorecard shows a continued strong correlation between increasing retirement savings and annual health care enrollment, Holtzman notes. In the second half of 2014, the report found a 104% increase in positive actions among new enrollees compared with the first half of the year, and a 98% increase in positive actions during the same time period.

“The one big change we’re starting to see is the rise in health care and thinking about health care and health saving accounts,” Holtzman says, “and the role it plays in people’s choices.” A substantial trend in benefits programs is the number of large companies moving into high-deductible health care plans, he observes, which is beginning to make its way into middle-market plans.

Next: Health care will attract as much interest as the 401(k).  

Participants’ Responsibility

Holtzman believes the industry is coming to a turning point where health care will reach the same level of interest that 401(k) plans began to see in the 1980s. “Employers and participants are starting to think about the role of health and health savings accounts,” he says, predicting the role of health savings accounts and health care benefits will experience massive growth. 

The interest in health care is still in its early stages, Holtzman says, noting that Millennials are going to find themselves being made increasingly responsible for their health care as they age, and will becoming increasingly interested in learning more about their health care needs.

As more Americans move into high-deductible health care plans, Holtzman forecasts two different conversations about what this means for participants. First, health care is a health product, he points out, and there will be a lot of talk about how to get the best medical care at the best price. In the defined contribution (DC) plan space, people will begin to think about planning for their medical costs in retirement and whether they are building the right savings. “It will unleash huge demand for consumer knowledge of the financial and health aspects of medical savings,” he says.

The report reveals that a substantial majority of plan sponsors (83%) feel a sense of responsibility for employees’ financial wellness and are tailoring financial education offerings to better meet the needs of their employees. At the same time, employees are taking more advantage of the financial education being offered. Meetings with Bank of America Merrill Lynch educational specialists increased by 14% from the same period a year earlier, and the Retirement Education Services phone center offering employees consultation and support had an 18% increase in calls over the same period.

For employee engagement of benefits, the 401(k) Wellness Scorecard also finds:

  • 6% more employers offer Advice Access, a professional saving and investment advice service tailored to the employee’s individual situation;
  • 91% of employees enrolled in Advice Access are using the managed account feature;
  • Visits to the bank’s online mobile site rose 46% year over year; and
  • Visits to the online education center have increased by 15% percent.

Holtzman cites editing as the key to a successful plan and simple plan design. “How do I make it easy for my participants to enroll in the first place?” he asks. Design should be intuitive, ask the right questions and offer simple choices. “Behavioral finance has found that human beings are well-designed to look at three options and make one choice. If you look at 25 choices, you walk away. A lot of success depends on demystifying the complexity of a 401(k) plan.”

The Bank of America Merrill Lynch 401(k) Wellness Scorecard is a biannual survey of behavior trends based on 2.5 million employees at companies with financial benefit plans serviced by Bank of America Merrill Lynch.

More information about the scorecard is on the website of Bank of America Merrill Lynch.

Data & Research May 12, 2015

$24B in Match Dollars Left Unclaimed

Participants who receive advice are less likely to leave money on the table from the employer match, a report says.
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A research report issued by Financial Engines, “Missing Out: How Much Employer 401(k) Matching Contributions do Employees Leave on the Table?,” estimates that Americans leave $24 billion in unclaimed 401(k) company matches on the table each year. 

Why do so many American retirement plan participants pass up the chance to potentially receive thousands of additional dollars every year in the form of employer 401(k) matching contributions? The company examined the saving records of 4.4 million retirement plan participants at 553 companies, and found that one in four employees (25%) misses out on the full company 401(k) match by not saving enough. The typical participant failing to receive the full match loses out on $1,336 of potential free money on the table each year, which adds up to an extra 2.4% of annual income not received. With compounding, this could amount to as much as $42,855 over 20 years.

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Using data from its own client base of large employers that provide advice services, Financial Engines based its data on those 401(k) participants who are eligible to contribute into their 401(k) plans, says Greg Stein, director of financial technology at Financial Engines. They filtered down further to those participants for whom they have salary data, then those in a plan with an employee match to arrive at 4.4 million participants.

Most employers (92%) that offer a 401(k) plan also match their employees’ contributions, according to data from Aon Hewitt. The most common scenario is one dollar for every dollar the employee contributes, up to 6% of the employee’s annual salary.  

“Plan sponsors and plan advisers have a number of levers at their disposal to impact these savings rates and hopefully these numbers will help them to think about how they might approach the topic with their participants,” Financial Engines Spokesman Mike Jurs tells PLANADVISER.

Receiving services from an adviser meant participants were more likely to get the match, no matter the participant’s age or income level, according to Financial Engines’ report. Age and income do have some impact on whether or not the participant will walk away from the match, Stein says. “The larger your income and the greater your age, the less likely you were to miss out on the full employer match,” he tells PLANADVISER. For some ages, between 35 and 45, the effect flattens a bit, likely because they are buying a first house, paying for childcare and starting to put money away for their children’s education.

Next: Advice plays an important role in receive the match.

The Impact of Advice

The report found that across all ages and income levels, participants who used advisory services missed out less on their employer match compared with those not receiving this help (15% versus 26%). Among employees earning less than $40,000 who used workplace advisory services, 25% percent missed out on part of their employer match, compared with 44% of those who did not use advice services.

The numbers give plan sponsors a clear assignment, Stein says, and can be used in messaging targeted at early middle age savers: “If you’re not getting the full match, take a second look at your contribution level.” Or, he says, they can message younger employees, who have time on their side. Plan sponsors can remind them of the big benefit they gain in getting started early, since they can accumulate more savings over time, and take advantage of the compounded growth in those savings.

“Many people may feel they can’t afford to save more,” Stein says, adding that he hopes the report will help people realize they can’t afford not to save, if they are unaware of the benefit. If saving is a challenge, there are ways to save more—enrolling in auto escalation or contributing the amount of a raise, for example—without feeling it as much. The report can also raise awareness of the benefits of meeting with an adviser.

The reason Financial Engines decided to try to quantify the amount of unclaimed match money was that it had never been calculated previously, Jurs says. “Others in the industry have looked at matches,” Jurs says, “but we never saw the amount quantified. Just how much are people leaving on the table? We thought it would be interesting to find out.”

“The number is real money,” Stein concludes, “and it’s kind of a wild number. We knew people weren’t saving enough to get the match, but the amount was surprising.”

A copy of the report can be downloaded from Financial Engines’ website.

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