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SECURE 2.0 a Step in Right Direction, But Participants Yearn for More

Industry Trends and Research

Various provisions under the SECURE 2.0 Act strongly resonate with employees amid considerable changes in retirement expectations, financial conditions and workforce demographics, but the findings of a new survey suggest that more can be done to promote retirement security.

And even though nearly half (47%) of respondents believe they are on track to save enough for retirement, a deeper dive shows that this may be false confidence and that the math behind their plans for retirement doesn’t add up, Natixis Investment Managers reveals as part of its findings.

The survey, which looked at behavior, preferences and attitudes about retirement savings across three generations — including Millennials, Gen X and Baby Boomers — found serious shortfalls in retirement savings, especially among Baby Boomers, 58% of whom say their biggest regret is that they didn’t start saving sooner. And while Millennials have time on their side, the financial headwinds they are facing at a crucial stage of life threaten to derail their progress.

Why do participants need help? Inflation is the No. 1 barrier to saving more for retirement, cited by the largest percentage of respondents across all generations (44%). Beyond inflation, a wide range of competing factors, ranging from personal debt to high healthcare costs, are limiting participation and savings, and may even be causing many to tap into their savings.

One in four (25%) DC plan participants, including 38% of Millennials, took an early withdrawal from their plan in the past 12 months. The three top reasons Millennials tapped their savings were to cover healthcare costs (41%), home repairs (36%) and debt repayment (34%). In addition, a large majority of Millennials (83%) and Gen X (78%) think Social Security benefits will be dramatically reduced by the time they retire.

“American workers are feeling the weight of responsibility for retirement funding, and younger generations, in particular, are pushing for changes that will better meet their distinct needs and preferences,” said Liana Magner, Head of Retirement and Institutional in the U.S. for Natixis Investment Managers. “Making retirement savings easy and appealing and helping them stay on track, particularly during periods of financial stress, will take united efforts from employers, individuals, and policymakers.”

What Do Participants Want?

Respondents apparently have strong feelings about what they want from their retirement plan. Here, the findings show that more than two-thirds (67%) of plan participants say a bigger company match would be the top reason for contributing more to their retirement plan. The company match was the No. 1 reason for deciding to participate in the plan for all respondents except Millennials, who say the convenience of automatic paycheck withdrawal is the biggest reason they initially joined.

Matching contributions may also be an effective lever for employers in a tight labor market. While respondents report an average maximum company match of 7.8%, Millennials are most likely to work for a company that offers greater than a 10% match (31%).

The findings suggest that provisions put in place by SECURE 2.0 will also be a positive step in the right direction once they go into effect. Among these are automatic enrollment in DC plans; recognition of student loan repayments to qualify for employer matches; linked emergency savings accounts; and higher catch-up contribution limits for older workers.

For instance, the survey found:

  • 42% of workers who do not contribute now, including 63% of Millennials, say they will begin to participate in their company plan when student loan payment matching benefits take effect; and
  • 54% of non-participants, including 77% of Millennials, intend to participate if linked emergency savings features become available.

Another area of interest is the 73% of respondents who say they would begin to participate or increase contributions if their plan offered investments in companies with good environmental, social and governance (ESG) practices.

Income Options and Advice

That said, participants want even more beyond the provisions of SECURE 2.0 and the incorporation of ESG factors. Most notably, 90% of plan participants would like to have access to retirement income options in their company’s retirement plan. This includes not just older workers (88% of Boomers and 86% of Gen X) but 92% of Millennials.

Notably, a large number of participants (79%) would like to see alternative investments such as private equity and hedge fund options added to the menu. Cryptocurrency is also showing up on the radar for 55% of participants but is of particular interest to younger participants, as 78% of Millennials would like to see a crypto option in their plan.

“The number is particularly surprising in that the sentiment comes after the big losses suffered by cryptocurrencies in 2022 and the ongoing drama over FTX as that exchange collapsed late in 2022,” the authors observe.

Meanwhile, nearly half (47%) of Millennials and 39% of respondents overall say recent volatility convinced them of the need for professional investment advice. Similarly, 41% of all respondents say that access to professional investment advice would be a top incentive for them to contribute more to their retirement plan.

With mandates taking effect, employers will need to focus on their Qualified Default Investment Alternative, overall investment offerings, educational support, and guidance for their employees, Natixis IM further suggests.

“It’s gotten a lot harder in the past two years for people to generate the personal savings that will ground their retirement income plans. It’s gotten to the point where one in five millennials, the generation that started out living in their parents’ basement, now think they might end up in their kids’ garage,” said Dave Goodsell, Executive Director of the Natixis Center for Investor Insight. “To adapt to today’s complex financial environment, employers should adapt their retirement plan benefit design and tailor their investment offering around the evolving needs of a multi-generational workforce.”

The findings are based on a survey conducted by CoreData Research in January and February 2023 among 736 U.S. workers, all of whom have access to a company-sponsored defined contribution (DC) retirement savings plan, SIMPLE IRA or SEP.

A copy of the Natixis Investment Managers 2023 Survey of Defined Contribution Plan Participants/Non-Participants can be found here.