While 2020 is a year that many want to forget, the results of a new survey suggest there are several recent trends that advisors should keep in mind when approaching clients and connecting with participants.
“Approaching clients with these things in mind can help advisors not only better connect with participants but also begin closing the retirement gap, one person at a time,” Vestwell says in its 2020 Employee Retirement Trends Report. Yet, the firm found that only 41% of participants said an advisor reached out to them over the past 12 months, and of those who were contacted, 70% said they welcomed it.
“This illustrates the massive opportunity advisors have to connect with—and influence—participants. Not only can advisors help guide participants, but they can also work with plan sponsors to influence plan design and matching to encourage higher participation rates and more successful outcomes,” the report suggests.
As a follow-up to its Retirement Trends Report that surveyed advisors and plan sponsors, these findings are based on a secondary survey of over 1,000 employees to understand how this year’s headlines, including the pandemic, the presidential election and racial unrest, intersected with 401(k) plans. Of those who responded, 89% are actively contributing to their plan.
Among those who are not contributing to their plans, when asked what would lead them to participate, Vestwell found than an employer match and higher salary topped the list of what would motivate them enough to begin contributing:
- Employer match (30%)
- Higher salary (19%)
- Reaching other personal milestones, such as paying off student debt or mortgage (12%)
- Other (12%)
- Better education around how a 401(k) works (11%)
Racial Disparities
The survey also found significant discrepancies in the retirement savings gap, particularly when looking at African American and Latino populations.
When looking at Caucasian respondents, Vestwell found that 64% have more than $10,000 saved for retirement and nearly 40% have $50,000 or more saved. But when looking at Latino respondents, however, only 42% have more than $10,000 saved and 16% have $50,000 or more saved. And when it comes to African Americans, only 38% have more than $10,000 saved and only 11% have more than $50,000 saved.
This race disparity is also evident by the differences in how much employees contribute to their retirement plans, the report notes. Of those who are contributing, the majority are either contributing 1-3% (26% of respondents) or 4-6% (35% of respondents). But when looking at contribution rates by race, 42% of Caucasians contribute more than 6% versus only 26% of Latinos and 15% of African Americans.
Similarly, the proportion of those who believe they will retire comfortably was notably lower when looking at Latinos (25%) and African Americans (20%) versus Caucasians (35%).
Educational Interests
Vestwell also saw differences between races when comparing interests and needs surrounding retirement education. When the firm asked respondents how well they understand how a retirement plan works, nearly 80% of Caucasians said “somewhat or very well” versus 66% of Latinos and 65% of African Americans.
When respondents were asked about specific topics they would like to learn more about, the top two picks were how to invest (50%) and overall financial wellness (40%). But when looking at the findings by race, Latinos and African Americans are more interested in learning about certain topics versus Caucasians.
For example, the survey found that 43% of Caucasians indicated they are interested in learning more about how to invest versus 59% of Latinos and 63% of African Americans. Latinos and African Americans were also much more likely to say they want to learn about the benefits of saving (23% of Latinos and 25% of African Americans) versus 9% of Caucasians.
Auto-enroll, Tax Deferral and Crypto
Without framing it as a political question, Vestwell asked respondents if they supported auto-enrolling plan participants at a set contribution rate with the option to opt out; the overwhelming majority (74%) of respondents said yes.
Respondents were also highly supportive of the tax deferral for 401(k) plans across all income brackets. In response to whether they consider lowering their taxable income to be one of the main benefits, across the board—from those who earn less than $25,000 per year to those who earn $200,000 or more annually—a majority of all earning groups agreed that they see the tax advantage as a main benefit.
“This suggests that although those who are in higher income brackets receive a much larger tax advantage, those in lower tax brackets are just as likely to view the tax breaks from contributing to a 401(k) as substantial,” Vestwell emphasizes in the report.
Plan participants appear to be hesitant about including Bitcoin or other crypto currencies in their 401(k) investment lineup, but are open to learning more. When asked if they would be interested in these offerings, 22% said yes to considering the funds, while 38% said maybe. The firm found that respondents were generally less hesitant about ESG funds, with 38% saying they would be interested in including them and 48% saying maybe.
Not surprisingly, younger respondents are more inclined to consider these investments versus older generations, according to the findings. For example, 33% of respondents in their 20s said yes to being interested in cryptocurrencies and 38% said maybe, while only 7% of those in their 60s said yes and 21% said maybe.
