If you automatically enroll them, they will save… sooner.
A new survey has found the vast majority (84%) of workers that were automatically enrolled in their workplace retirement plan say they started to save for retirement sooner than if they had to take action to make the enrollment decision on their own.
However, only one-third of employers currently offer automatic enrollment, and among those that do, just 21% have an automatic deferral rate of 6% of eligible pay, according to the latest quarterly Principal Retirement Security Survey, released today.
The results come at a time when the U.S. Congress is considering legislation to incentivize auto-enrollment features in retirement plans to encourage workers to save or save at higher contribution rates.
According to the research, employers offering automated plan features see a positive impact on overall plan success, with employees starting to save for retirement at an earlier age (80%), automated features increasing employee savings rates (65%), and plan assets growing faster (47%).
Meanwhile, workers surveyed by Des Moines, Iowa-based Principal are interested and ambitious when it comes to saving, listing retirement planning as their top financial priority, with a third of workers planning to save more now than before the pandemic.
On average, participants say they need to save 11.6% of their paychecks to help meet retirement goals, and count on increasing financial literacy (80%) and employers offering financial wellness resources (60%) to increase retirement readiness.
“We’ve known for a long time that automatic enrollment features are powerful in helping people feel more secure as they strive to build up retirement savings, but these latest survey results show we currently have a window of opportunity for access to education as well as implementation,” said Sri Reddy, senior vice president, Retirement and Income Solutions at Principal Financial Group. “The findings also show that when employers provide access to retirement features such as automatic enrollment and company matching the majority see improved savings from their employee base.”
Principal found company matching to be another major factor in helping boost workers’ savings results, with nearly half (47%) of workers noting it as the biggest influence toward increasing their contribution rate.
What’s more, employers are open to trying new retirement savings vehicles and solutions to enhance savings, including enrollment in an IRA once an employee has reached the IRS contribution max (32%), and the automatic enrollment of Gen Z employees into financial literacy education (31%).
Pending retirement legislation called the Securing a Strong Retirement Act of 2021, or SECURE 2.0, would require a minimum of 3% auto-enrollment for most new 401k and 403b plans. Workers in the survey were open to automatic enrollment features and education, with 75% either positive or neutral on employers automatically deferring an extra 1% of their salary each year until they reach 10%. In addition, 97% were positive or neutral about being told the average contribution rate of employees in their age and salary bracket.
“This is a crucial time for employers to review their retirement plan offerings. A tight labor market combined with new and evolving employee needs due to the pandemic make it more important than ever for plan sponsors to offer impactful retirement saving solutions,” said Reddy. “The tried-and-true methods of auto-enrollment, company matching, and individualized financial education remain powerful assets in helping people save for their futures.”
Find the full results for both consumers and plan sponsors at this link: Principal Retirement Research.
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
