On first glance, no surprising facts emerge from the firm’s data. Too few people save, and few save enough, according to “The Retirement Savings Paradigm: Factors Influencing Saving,” ADP’s study on how people save for retirement.
But anonymous, aggregated data from 9 million employees does show some interesting trends about retirement savings behaviors, says Ahu Yildirmaz, vice president and head of the ADP Research Institute.
“Our goal was to find how these factors influenced their saving behaviors,” Yildirmaz tells PLANADVISER. “On average, 60% of employees are saving for retirement and saving at a rate of about7%,” she says. This agrees with findings from many other surveys, but Yildirmaz says ADP found some surprises.
Savings behaviors vary widely based on participant demographics, company size, and industry, Yildirmaz says. Workers in financial services and information industries have the highest retirement savings rates, at 70% and above. Only 37% of leisure and hospitality employees save—just slightly below construction, with 45% of employees participating in a workplace retirement plan.
The reasons for the poor showing in leisure and hospitality duplicate the findings elsewhere. Younger workers tend to lag older workers both in participation and in deferral rates. Compensation level is another key finding. “As the compensation level goes up, participation and savings rates also go up,” Yildirmaz says.
Leisure and hospitality—hotels, restaurants, recreation firms and parks—has a higher number of younger workers, with an average age of 34, much younger than the national average, Yildirmaz says. The compensation level for those workers is comparatively low, she says, which helps to explain why plan sponsors in this sector may face a special challenge in improving participation rates.
Who Saves More?
Workers in higher wage groups do save, ADP’s data shows, and they save more. For example, in large companies (defined as having more than 5,000 employees), only 50% of workers in the lowest wage category saved, but 80% of those earning more than $110,000 saved.
It is not surprising that as people near retirement, participation and savings rates rise. “They peak just before retirement,” she says, adding that 65% of employees older than 60 save at rates that average more than 9%—quite a contrast compared with employees age 20 to 29. (Employees age 50 to 60 save at an average rate of 8%.)
Fewer than half (48%) of employees age 20 to 29 participate in a workplace retirement savings plan, and those that do participate save at an average rate of slightly under 5%. Plan sponsors need to focus on younger age groups, Yildirmaz says, so these workers can best use their longer time frame to give them the advantage of compounding interest on their savings.
Another surprising finding is that even though the workforce has more men than women, and women are disproportionately concentrated in lower-wage jobs, according to Yildirmaz, more women participate in workplace savings plans than men.
“Even though there are fewer women and they make less money,” Yildirmaz says, “their savings rates are higher than men’s.” Especially interesting, she points out, women spend more time outside the workforce and leave earlier than men. She attributes these savings rates to successful messaging by financial advisers and agencies to raise awareness. “It appears to have made an impact,” she says.
Another surprise the data uncovered is that company size is directly related to participation rate, Yildirmaz says. “As company size increases, so does the participation rate,” she says. “But the savings rate went in the opposite direction. The smaller size of companies had higher savings rates.”
This is a challenging finding, Yildirmaz says. It seems that employees at smaller companies take full advantage of plans whenever available, and these small companies may have employees who are more responsive to messaging. At the same time, employee responsiveness may reinforce the company’s desire to offer the benefit since they can see that it is valued.
Plan sponsors, Yildirmaz points out, need to step up communication and education for younger employees. “Engage them early in the process so they will take advantage of workplace retirement plans,” she says.
Communication is a must and should be as specific and engaging as possible in order to attract employees early on in their careers. “Advisers can provide guidance about plan design plans and more important, how they communicate these plans,” Yildirmaz says.
Plan sponsors must understand and analyze the sector they operate in, as well as the composition of their workforce. When so much evidence shows workers who are younger, male or lower paid need help understanding the importance of participating in a workplace retirement plan, plan sponsors can use this as valuable information to tailor communication and education programs.
ADP, best known as a payroll services provider, has a research arm, the ADP Research Institute, which comprises economists and researchers. “The Retirement Savings Paradigm: Factors Influencing Saving” examined the retirement savings rates of approximately 9 million U.S. employees in 2013. The study can be downloaded from ADP’s website.