What 401(k) Participants Lack, Love About Retirement Saving

Call it a crisis of confidence—nearly half of plan participants still don’t feel they’ll have enough money to retire when they want.

However, “participants are supportive of plan sponsors’ efforts to strengthen their plans through target date funds (TDFs), especially in conjunction with automatic enrollment, automatic contribution escalation and re-enrollment,” according to J.P. Morgan Asset Management.

Its “2018 Defined Contribution Plan Participant Survey” finds that while their retirement outlook has improved, only half of participants believe they will be able to retire at their ideal retirement age, while the same percentage “somewhat” or “strongly” agree that their savings will last throughout their lifetime.

Approximately half of participants are willing to spend time planning but don’t know where to start, and nearly three-quarters believe they should be saving 10 percent or more.

Fully 70 percent of these participants are missing their savings targets.

“While it’s pleasing to see that retirement plan participants are gaining confidence, the fact that nearly half of participants are still uncertain about their retirement prospects suggests that there is still work to be done,” Catherine Peterson, Managing Director, Global Head of Insights Programs at J.P. Morgan Asset Management, said in a statement. “The coordinated efforts of plan sponsors, regulators and other industry stakeholders to assist participants in achieving their retirement goals must continue.

“The survey shows that nearly three-quarters of participants are still missing their savings targets, so it’s critical that plan sponsors stay focused on evolving their plans to ensure participants have access to simple, streamlined services that can guide them on a strong saving and investing path,” she added.

Three other key themes emerged:

1. Motivating participants to save

Plan participants generally expect employers to encourage them to save through their DC plans, however few want their employer to decide their savings rate for them.

The popularity of automatic enrollment and automatic contribution escalation suggests that these initiatives are striking the right balance between providing guidance and allowing autonomy. Some key findings around participant motivation include:

• More than three-quarters (78 percent) of participants support a combination of automatic enrollment and automatic contribution escalation as part of their plan.
• Fully 80 percent of participants with both automatic features expect their savings to last throughout their lifetime vs. 47 percent of those who were only automatically enrolled.
• Employer matches have the potential to be misinterpreted, with 30 percent viewing their contribution match as a contribution recommendation, and 18 percent seeing it as what their employer “thinks they should be saving.”

2. Streamlining investment decision-making

Target-date funds have gained in popularity among participants (88 percent find them appealing, including 81 percent of “do-it-yourself” investors). At the same time, TDFs have become the QDIA of choice among plan sponsors.

However, there appears to be a discrepancy between the views of plan sponsors and their participants when it comes to re-enrollment:

• In a 2017 survey of plan sponsors, 24 percent considered but did not conduct a re-enrollment for fear of employee pushback.
• The 2018 survey of plan participants revealed that 86 percent supported a re-enrollment.
• What’s more, 99 percent of those who have gone through a re-enrollment and allowed their funds to be moved to a TDF were satisfied.

3. Understanding generational differences

It’s critical for plan sponsors and their advisors to consider the distinct composition of their workforces, and the similarities and variances in motivation and behavior across age groups.

The survey revealed the following comparisons across participant age cohorts:

• More than half of participants under 30 believe their employer has an obligation to help them choose the right investments, compared to just 18 percent of those 55 and older.
• Participants under 30 are most confident about what they should invest in, while those over 55 are most confident about how much they need to put away to reach their retirement goals.
• Among all age groups, including those over 55, a strong majority of participants are in favor or at least neutral towards re-enrollment, automatic features and TDFs.