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Report: Driving Improved Savings Behaviors

By SHRM Online staff  10/7/2011
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There has been an evolution in the attitudes and behaviors of retirement plan sponsors and participants since the low of the 2008-09 recession, from a recovery to a discovery mindset. The focus is now on long-term goals, according to The Total View 2011, a report from the Principal Financial Group that analyzes 2009 and 2010 data from retirement plans with services provided by The Principal and third-party research.

“We’re seeing participants shift their focus from getting back to where they were to taking steps to get to where they need to be to reach their financial dreams,” said Barrie Christman, vice president of individual investor services at The Principal.

Some key findings from the report include:

Education meetings help drive better outcomes. Plans that included one-on-one planning sessions saw higher participation and deferral rates from participants than those without these sessions (71 percent participation and 7 percent deferral rate vs. 59.6 percent participation and 6.8 percent deferral). Access to a group meeting drove up participation rates by 5.5 percentage points over those who did not have access (64.5 percent vs. 59.0 percent).

•  Plan design features improve savings behavior. Plans that offered automatic enrollment and automatic escalation features had the highest participation rate at 78 percent, more than 19 percentage points higher than those without these features. Nearly twice as many participants (61 percent vs. 32 percent) reached an overall contribution rate—including any employer match—greater than 11 percent when their employers’ plan default was 6 percent rather than 3 percent.

“In order to help ensure sufficient retirement income, we believe most retirement plan participants should be saving 11 percent to 15 percent of their pay—including any employer match—throughout an entire working career,” Christman said.

For sufficient retirement income, most participants
should save 11%-15% of their pay—including any
employer match—throughout their working career.
– The Principal Financial Group

Providing multiple plan types bumps up participation and savings rates. Participation in defined-contribution plans was 11 percent to 13 percent higher among highly compensated employees, and 3 percent to 5 percent higher for non-highly compensated employees, when combined with a nonqualified retirement plan vs. a standalone defined-contribution plan, according to The Principal.

Average salary deferral percentages and account balances were also higher for both highly compensated employees and non-highly compensated employees when the two plans exist.

The Total View report covers 401(k) and 403(b) defined contribution plans, defined benefit plans, nonqualified plans and employee stock ownership plans. The report includes benchmarks on trends among approximately 37,000 retirement plans with services provided by The Principal to 3.7 million eligible participants, representing nearly $123 billion in assets under management.

As previously reported...
Default deferral contribution rates in 401(k) plans are most often set at 3 percent of annual salary, with 58 percent of plans using this percentage, according to a survey by Vanguard Investments. Default  rates of 3 percent or less are used by 73 percent of plans, while only 27 percent set the default rate at 4 percent or more (see "401(k) Automatic Enrollment: Does It Help or Hurt Savings?").

Related Articles:

401(k) Plans Add Features to Drive Participation and Savings, SHRM Online Benefits Discipline, September 2011 

Despite Tepid Economy, Retirement Savings Commitment Stays Strong, SHRM Online Benefits Discipline, October 2011

Education Eases Employees’ 401(k) Concerns, SHRM Online Benefits Discipline, September 2011

‘Staying the Course’ Rewards 401(k) Investors, SHRM Online Benefits Discipline, September 2011

Retirement Preparedness: the ‘New Normal,’ SHRM Online Benefits Discipline, September 2011

Assessing and Developing Employee Financial Competency, SHRM Tools and Templates, December 2010

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Retirement Plans Resource Page

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