While it may come as no surprise, new survey results show that auto-enrollment has been an important tool to help young savers get on the right track to saving for retirement early in their careers.
According to the latest quarterly Principal Retirement Security Survey, 84% of workers who were automatically enrolled say they started to save for retirement sooner than if they had to take action to make the enrollment decision on their own. That said, only a third of employers were found to currently offer automatic enrollment, and among those that do, just 21% have an automatic deferral rate of 6% of eligible pay.
The findings are based on survey results among more than 2,000 workers and retirees, along with 236 plan sponsors, conducted in June 2021. Principal conducts quarterly surveys with financial professionals, plan sponsors and consumers to assess their concerns and feelings about saving and preparing for retirement. Additional topics include job turnover, economic outlook, top financial concerns and retirees’ financial wellness needs.
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%).
The results, Principal notes, 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. The SECURE Act 2.0 legislation would require a minimum of 3% auto-enrollment for most new 401(k) and 403(b) plans.
According to the survey findings, workers 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.
“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,” says Sri Reddy, Senior Vice President of 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.”
Company Match and Other Features
Not surprisingly, Principal also 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%).
Meanwhile, workers surveyed by Principal appear 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.
The survey also found that nearly 8 in 10 workers are interested in some type of financial advice:
- 47% are interested in advice from a financial professional they can talk to about their personal situation;
- 32% are interested in an online tool/model that will help them personalize their investment mix (the online tool would be provided by a third-party investment expert);
- 10% are not interested in advice and want to select their own investment options; and
- 8% are not interested in advice from others and want to use the default investment typically selected by an employer in a retirement plan.
“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. The tried-and-true methods of auto-enrollment, company matching and individualized financial education remain powerful assets in helping people save for their futures,” Reddy further emphasizes.