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Survey: Participants Looking for ‘Extreme’ Automatic 401(k) Plans

Industry Trends and Research

Believing their workplace retirement savings plan is one of the most important benefits their employer offers, large majorities of employees support employer efforts to implement automatic plan features. 

According to the survey by American Century Investments, some 7 in 10 respondents believe automatic enrollment should be implemented at a 6% contribution rate, and two out of three believe their employer should automatically enroll employees into their plan at a set percent and increase it automatically each year. 

“The results of this year’s study show high expectations around the role of employers and both the priority and value placed on employer-sponsored retirement benefits,” notes Diane Gallagher, American Century Investments’ Vice President for Value Add. 

Also important for employers to know, according to Gallagher, is that 60% feel more positively about a company that offers automatic enrollment, automatic increase and target-date investments. What’s more, a large majority would like their employer to offer at least some encouragement to save more. “When asked what role they would like employers to play, 8 in 10 want at least ‘a slight nudge,’” Gallagher says. While this has been consistent finding, older generations are more likely than Millennials to say, “leave me alone,” she notes. 

Additionally, 8 out of 10 respondents said they would be more likely to leave money in their plan if their employer offered an investment option specifically to help retirees draw income during retirement. Participants report rollover IRA as the most common distribution option today. 

“Clearly, there is a strong preference for leaving assets in the plan at retirement and taking withdrawals from the plan to fund retirement. This interest certainly has implications for plan sponsors and providers to offer solutions to make that a reality for participants,” Gallagher suggests. 

Losing Sleep

Meanwhile, given the onset of the pandemic, participants expressed concerned about various types of risk, while also indicating they would welcome advice. Generational and gender differences do appear, however, among the types of risks participants are most concerned about, according to the findings. 

For instance, concern over market risk and growth risk has risen significantly from last year, with market risk overtaking longevity risk as participants’ greater concern in this year’s survey. Not surprisingly, half of Boomers surveyed are most concerned about market risk. “Perhaps the timing of the survey had some influence here as we were researching in March, at the advent of the COVID-19 pandemic and in the midst of high volatility,” Gallagher notes. 

In fact, the share most concerned about longevity risk is down significantly from last year (28% vs. 42% in 2019). Yet, men are more likely to select growth risk as the risk that concerns them most, while women are more apt to choose longevity risk, the survey found. 

Still, worries about financial matters abound with half of all participants worrying a “great deal” about saving enough for retirement. Gen Xers, generally, were found to worry the most. While men are more likely than women to say that worrying about saving enough for retirement, a healthy lifestyle and their children’s college education, along with investing properly and supporting an adult child, are what keeps them up most nights.

Holistic Advice

Amid these findings, this year’s study also found that three out of four participants would be interested in holistic financial advice from their employers—a significant increase from last year. Additionally, participants making at least $100,000 per year were more likely to find this offer attractive. 

Similar shares of participants currently use personal research, financial advisors, and family for advice on investing, with Boomers most likely to use a professional advisor. “Given the premium participants place on the role of employers, it’s not surprising that participants would look to employers to offer a source of financial advice,” Gallagher further observes. “Participants seem a little overwhelmed at all the advice options available to them, so getting that advice through an employer-provided source is valuable.”   

That said, participants were split on their feelings towards paying for professional advice. According to the findings, 4 in 10 believe paying for an advisor is worth the cost, while another 4 in 10 would rather pay less for software or an online program. The remaining 2 in 10 say they will never pay for professional advice. Additionally, women are more inclined to prefer an online advice service over an advisor, based on cost, and men are more likely to believe paying for an advisor is worth the cost.

American Century’s eighth annual survey was conducted March 10-31, 2020, among 1,508 full-time workers between the ages of 25 and 65 saving through their employer’s retirement plan. Data collection and analysis were completed by Mathew Greenwald and Associates.