Just One Slice of the Pie

Defined contribution plans are an important source of retirement income for many present and future retirees. That sentiment was evident in our ninth annual PLANSPONSOR Participant Survey, where, this year, 2,301 American workers responded to questions about their financial behaviors, preferences and attitudes. Of this group, 774 full- or part-time employees currently participate in an employer-sponsored DC plan.  

Half (51%) of the participant-respondents defer less than 5% to their plan—far less than the industry-recommended savings rate of 10% through 15% of compensation. Only 14% of participants save more than 10%.  

While these rates might seem low, and cause employer-generated retirement projections to show participant savings deficits in some cases, DC plans are just one piece of people’s savings. When asked what sources of income the participants expect to have in retirement, they cited significantly more than their present plan. Fifty-five percent will look to income from a DC plan account at one or more prior employers, plus any such plans belonging to a partner; almost 60% will rely heavily on Social Security, and 31% will rely on a traditional pension plan.

Excluding Social Security, outside savings can have a usefulness beyond being future income: When they are  accounted for on the DC plan’s platform, they can make the participant’s plan account work harder, by expanding its available resources and contributing personalization. When viewed in total, they also create a more detailed, trustworthy picture of the participant’s retirement readiness.

Adding assets to a provider platform can be a challenge for participants. Still, “Whether you’re entering information about outside savings or nonqualified money, it can make a huge difference,” says Terry Burns, managing director of capabilities for the retirement services division at OneAmerica in Indianapolis. The better the person can factor in the outside assets, the better the plan services will be, he suggests. “And then we see engagement go up at the participant level.” 

Having an account personalized in this way is key for pre-retirees, who may have an increasingly complex financial picture, but also for younger participants who may expect personalization here, just as they expect it in other dimensions of their consumer life. 

Advisers can help in this process by seeking participant data from recordkeepers and using that to personalize communications and further tailor their services. Burns expects personalization to continue as an integral part of financial offerings.