Most Americans are unsure about how much of their pay they should use to fuel a retirement savings vehicle. Based on research conducted within its own recordkeeping platform, Ascensus found that even though deferral rates continue to steadily increase as people age, the average rate across all generations is “surprisingly low” at 5.5%.
However, certain steps can be taken to address this issue. The firm concludes that targeted communication, education, technology and auto-enrollment together can have a significant impact on motivating participants to increase contribution rates.
Ascensus found that in 2016, the employees who chose to enroll in their company retirement plan after receiving a targeted communication deferred an average of 6.24% of their pay. And even though their Retirement Outlook Tool found that only 35% of participants were on track to meet their retirement goals, 55% of those who weren’t contributing anything toward their companies’ retirement plans decided to enroll at an average deferral rate of 8% after using the tool.
The Retirement Outlook tool is among a suite of digital offerings that Ascensus and other providers are utilizing to help participants enhance their financial wellness through education and motivation. User-focused technology can also boost enrollment simply by facilitating the process.
Ascensus found that 92% of its clients are now offering digital enrollment, with many employers allowing participants to enroll in their plans in as little as three taps. Not surprisingly, Millennials are driving the increased use of digital and mobile enrollment. According to the firm’s research, Millennials younger than 25 have the lowest average deferral rate of 3.2%. Technology could be a catalyst in reaching this age cohort and influencing them to make better decisions about retirement planning. In fact, research suggests many Millennials are overconfident in their financial knowledge, suggesting they can greatly benefit from a solid, personalized, tech-driven educational effort.
In addition, the firm found the highest participation rates (80%) in plans that utilize both auto-enrollment and auto-escalation. And while some plan sponsors are reluctant to make the most out of auto features due to the potential for employee backlash, research by Ascensus suggests that may not be the case. Of the plans that chose to auto-enroll new hires at 3% to 5%, more than half (63%) stayed enrolled at the default rate. Twenty-six percent chose to increase their savings rates.
“Inside America’s Savings Plan” by Ascensus can be found at Pulse.Ascensus.com.