Participants worry that they aren’t saving enough. Why? Turns out, it depends who you ask.
BlackRock’s recently released DC Pulse Survey has identified that employers sponsoring workplace retirement plans and the plan participants themselves have different views on retirement readiness.
Female respondents cited high credit card debt, not earning enough money and high cost of living as main deterrents to setting money aside for retirement. Interestingly, while men pointed to the same set of hurdles, their concern did not rise to the same level (see graph above).
Armed with this insight, advisors can work with plan sponsors to help women and other concerned participant groups better understand the tools they have at their disposal. And having more targeted and engaging participant communications is one way to help reach these groups.
New Research Finds DC Plan Participants Still Need Help
by Anne Ackerle, Managing Director, Head of BlackRock U.S. and Canada Defined Contribution Group
When the Pension Protection Act became law a decade ago, it highlighted the transformation in workplace retirement plans that was already underway. Since then, 401(k)s and other types of defined contribution plans have largely replaced traditional defined benefit pensions as the foundation for U.S. workers' nest eggs.
In response, employers and providers have doubled down their efforts to get DC plans to do more heavy lifting for participants saving for retirement. The industry has made significant progress, with more Americans contributing larger portions of their pay to workplace accounts.
But there's still work to do. BlackRock's 2016 DC Pulse Survey of 200 employers and more than 1,000 participants finds that, despite the progress many plans have made, a large number of sponsors anticipate a crisis where participants can't retire as expected. There are also wide gaps between sponsors' views of their plans' effectiveness and participants' perceptions of their own retirement readiness.
The good news: We can leverage tools and strategies available now to work toward better retirement outcomes. Here is a look at some key DC Pulse findings, along with ideas for using those insights to improve plans today:
See Where You Stand
While 59% of sponsors say the majority of their participants are saving enough to retire with the income they will need, only 28% of the participants surveyed are confident they are saving enough.
The question is: Who's right? It's important to find out by measuring where your participants stand. Plans are using new technology and analytics developed by BlackRock and other firms to quantify likely participant outcomes based on their current investment defaults, matching rates and other plan features. Other tools, including our CoRITM Retirement Indexes calculator, can help participants understand how far their individual savings could go toward generating estimated income each year in retirement.
Participants also lack confidence about investing, with no more than one in four respondents preparing for retirement or engaging in their plans in any way beyond the basics. In fact, almost half of the participants surveyed for DC Pulse say they could use more guidance on how to invest for their age and life stage.
Sponsors can provide the direction participants are asking for by automating enrollment into default investments, incremental increases in savings rates and, for participants who are over 50, catch-up contributions. Going automatic means participants have to "opt out" of retirement investing -- rather than having to take action to "opt in."
For participants in potentially outdated investments, or with asset allocations that have become unbalanced over time, consider levelling the playing field with reenrollment. One in four plans have already reenrolled participants, DC Pulse finds, and an additional 29% said they are looking to do so in the next 12 months. Reenrollment is clearly gaining traction as a way to reach employees who never signed up -- or to move those already in a plan into the current default investment, typically a target date fund that's rebalanced to reduce risk over time.
Customize by Generation
We also saw differences in participants' needs across generations, making the case for a more customized approach. Millennials, for example, are optimistic about retirement – even though fewer than half have calculated how much money they should be setting aside. Gen Xers are the least confident among the generations, feeling less informed about important basics from minimizing investment fees to gauging whether they are on track.
Boomers are equally split on what to do with their money in retirement. Roughly the same percentages plan to keep their savings in their workplace plan, manage their own investments, work with a financial advisor or are undecided.
With concerns so specific to each generation, it's important for sponsors to examine different groups of participants to help them course correct in the ways most likely to have a significant impact. By addressing needs at the right time, sponsors may be able to do a better job of helping Millennials save more at an earlier age, Gen Xers measure their progress toward meeting their goals, and Boomers find low-cost ways to stay invested and make withdrawals in retirement.
Target the Talk
Sponsors and participants alike are frustrated with their plan communications: 49% of the sponsors surveyed for DC Pulse say there are few resources left for such outreach after meeting legal requirements, and 45% of participants say the information they get doesn't help them decide what to do. That's a call to action to prioritize communications. We are striving to do better, providing sponsors with innovative communications using simpler language, delivered through video and new digital formats, and informed by behavioral finance research. With this fresh approach, we are working hard to help participants take action to increase and optimize workplace savings.
With the insights we have gained from DC Pulse, BlackRock is committed to partner with plans and providers to take advantage of all of the latest technology and analytics, tools and other resources available to increase participants' engagement – and savings. In the decade to come, let's see how much progress we can make toward building better retirement futures.
*This content is developed from sources believed to be providing accurate information. Article and data are courtesy of BlackRock.com The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.