Do Plan Participants Want a ‘Slight Nudge’ or a ‘Kick in the Pants’?

When it comes to saving for retirement, do employees prefer a “slight nudge” from their employers with helping them save? Or do they want a “kick in the pants”?

American Century Investments’ fifth annual National Survey of Defined Contribution Plan Participants asked that very question and found that overwhelmingly, participants prefer a slight nudge. According to the findings, 8 out of 10 employees want at least a slight nudge, while only 1 out of 10 want a kick in the pants to encourage them to save more.

The survey of 1,500 full-time workers (grouped by ages 55-65 and 25-54) who currently participate in an employer-provided retirement plan found that the vast majority of participants agree that their company should offer automatic features. In fact, some 75% believe automatic enrollment at 6% is something their company should do, and more than 60% believe automatic enrollment should be implemented retroactively.

Moreover, 80% of respondents indicated at least some interest in regular, incremental automatic increases, with the same percentage expressing support for plan investment re-enrollment into target-date solutions.

Any Regrets?

The survey also considered employee regrets about saving. It found that not saving for retirement was cited as the most common personal regret – even over having better personal relationships. Not surprisingly, that level is rising among pre-retirees, with a 5% increase in the past two years of those age 55 to 65 who report having a great deal of regret.

Similar to other survey findings, the top reasons participants cited as barriers to saving remained consistent, with 70% or higher of all age groups reporting that they are not earning enough or they have high debt or unexpected expenses.

In a somewhat amusing and candid twist, the survey found that more than 90% said it would be “somewhat important to tell their younger selves to save more,” yet 75% said their early-career self would only be “somewhat or very likely” to listen to that advice.

“We continue to see this disconnect in people knowing what they ‘should do’ against what they actually do with respect to saving,” says Diane Gallagher, American Century Investments’ Vice President of Client Marketing. “Although participants recognize that responsibility and gravity, they still struggle with overcoming inertia to move forward.”

About That Nudge

Employees’ reliance on employers to help them start saving continues to be a theme among participants. Nearly half  – 4 out of 10 – credited their employer with playing a key role in getting them to save for retirement, and despite giving themselves a ‘C’ on saving for retirement, participants awarded a ‘B-’ on the help offered by their employers.

The survey also revealed that plan participants largely favor receiving a higher match over a higher salary. When offered the option of receiving either a 100% match on 3% of their retirement plan contributions or a 3% higher salary, 77% of pre-retiree respondents and 75% of participants ages 25-54 chose the match over the higher salary. The percentages changed just slightly when asked the same question but substituting 6% for 3% – 78% of pre-retirees and 69% of working-age participants chose the match.

Employees also apparently favor an employer-run retirement plan over a state-run plan. When asked about their preference, 57% of pre-retirees and 58% of working-age participants would prefer an employer-run plan.

The survey was conducted by Mathew Greenwald and Associates during the third quarter of 2017 among a total of 1,500 full-time non-government workers between ages 25 and 65 who participate in their employers’ retirement plans.

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