There’s a wide disconnect between 401(k) participants and their retirement goals, and that is affecting how employees understand and interact with plans, according to new research by J.P. Morgan Asset Management.
However, there is enough leeway in attitudes that employers can deploy automatic 401(k)s without fear of pushback, the study’s authors add.
For instance, a large majority of the 1,000 plan participants surveyed for the study (90%) had a positive view of target-date funds, and nearly all who were enrolled in automatic plans (96%) said they were satisfied with them.
At the same time, almost half (45%) said they do not have a retirement savings plan, and almost 70% said they have not been saving enough for retirement.
One solution that J.P. Morgan researchers emphasized was the impact that employers can exercise through adopting automatic 401(k) measures such as employee enrollment into TDFs.
“Many DC plan participants still face significant barriers to reaching retirement goals,” said Catherine Peterson, managing director and global head of insights programs at J.P. Morgan Asset Management.
“We think plan sponsors have an opportunity to strengthen their plans and help provide the necessary catalysts for transforming intent to action.”
The report says automatic enrollment into a retirement plan is a powerful tool that employers are reluctant to use because of a “misperception” that implementing automatic features and conducting a re-enrollment will lead to employee pushback.
“Survey results, however, suggest that participants recognize their need for saving and investing guidance, and most are in favor of, or at least neutral toward, these features and strategies,” the authors note.
The study found that:
- Among those automatically enrolled in their plans, only 1% opted out, nearly all are satisfied (96%), and almost a third (31%) say they would not have enrolled otherwise
- Among those whose contribution amounts are/were automatically increased by 1% to 2% each year, almost all are satisfied (97%), and 15% say they were unlikely to have escalated their contributions if not for this automatic feature.
- Among those who went through a re-enrollment, 73% allowed their assets to be moved to a TDF, and 99% of those whose funds were moved are satisfied.
“Sponsors,” Peterson said, need “to carefully consider these features and strategies and establish the appropriate balance between maximizing participant autonomy and proactively placing participants on a path to a financially secure retirement.”
The generational gap adds an interesting twist for employers looking to recruit hires under 30, the study notes.
As employers consider adding student loan repayment aid as a benefit to entice younger hires, the study found the demographic is more favorable toward automatic 401(k)s, with 62% stating they wanted to be notified if they were not saving enough for retirement,
In fact, researchers note that half of the under-30 surveyees “agree that their employer has an obligation to help them pick the right investments.”
In order to maximize their plans, employers must try to understand what plan participants want, the study suggests.
There’s an additional operations benefit in helping employees manage their savings, according to another report.
Employees who struggle with daily expenses deal with a great amount of stress that can filter into the workplace, according to a new report from Financial Finesse. The study found that 6 out of 10 people lost sleep over at least one financial problem, which leads to an average of 11 lost days of productivity on the job, Cynthia Meyer, a financial planner with Financial Finesse.
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