Good, but hoping for better.
A recent report form Wells Fargo found that 401k participation has increased by 19 percent during the last five years, with increases seen “across all demographic segments.”
Additionally (and not unexpected), the average 401(k) contribution rate and participant diversification have also improved during this time span.
The company, which dug deep into its own book of business for the study, noted plan defaults “can make a huge difference in whether a participant meets his/her goal for a better retirement. These defaults include automatic enrollment, automatic increase increments and the upper limit, and the plan’s default investment (i.e., QDIA).”
Among other findings:
- Employee communication campaigns can have an impact on all areas of participant behavior but have proven to be especially beneficial for targeting audiences with a lack of investment diversification.
- Younger employees are reaping some of the benefits of what the retirement industry has learned over the past several decades. Given today’s plan design trends, employees just starting out are likely to be automatically enrolled in the plan and defaulted into a diversified investment option. Starting at a young age can give an employee a better chance of saving what is needed and seeing the growth necessary to prepare for a better retirement.
- In general, the youngest employees are positioned for better results due to enhanced plan design and the oldest employees benefit from exposure to the plan, longer tenures, and greater sense of urgency as retirement becomes imminent. Plan sponsors need to be aware of the pockets in between that may have been overlooked and need additional attention to get them on track.
- A thorough plan analysis can reveal slight changes that can have a big impact. In many cases, these changes can be made with little impact on the budget for a plan. While every retirement plan is unique, we can use the information gleaned from our entire client base to understand how a plan change can affect results.
“When plan sponsors pinpoint the areas that need to be addressed and take action based on potential results, the plan’s health is likely to improve and participants may be more likely to take important steps toward reaching the 80 percent income replacement goal,” the report concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
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