The youngest employees and defined contribution (DC) plan participants often want more automated features to their plans, and most assign their plan sponsors some responsibility for helping them choose the right investments to fund their retirement while it’s still decades away.
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J.P. Morgan, in a recent research report on DC plan participants, said more than half of these young participants—under age 30—think their employer has an obligation to steer them to the best investment options. Just 22% of their older colleagues had the same idea in the study, conducted in January 2016.
Despite their reputation as being self-assured and independent, these participants under 30 were more likely to classify themselves as “do it for me” investors than were older participants. They prefer to leave most of the ongoing investment decisions to experienced investment professionals versus taking a more hands-on approach to their retirement accounts.
Sixty-two percent of the under-30 group also said they prefer to receive notifications from their employer if they are not saving enough, compared with 34% of those 30 and older wanting this kind of support.
Appreciate Proactive Tools
In contrast with continuing reluctance among some plan sponsors to adopt an “automatic 401(k)” using a combination of automatic enrollment and employee contribution plan features, qualified default investment alternatives (QDIAs) such as target-date funds (TDFs), and reenrollment, the youngest participants appear to appreciate and, to some extent, expect their employers to proactively use these tools to help them get on track for a secure retirement.
J.P. Morgan said its research found “an encouraging level of support, particularly among participants under 30, for these plan features … that may help automate and simplify employee retirement-related decisions.”
Possibly because most have never known any other type of employer-sponsored retirement plan, the vast majority of under-30 respondents to J.P. Morgan’s research study said they were in favor of, or at least neutral toward, the automated plan features listed in the table below. The study comprised 1,001 respondents, with 109 under 30 years old and 892 30 years old and over.
| Percentage of Participants in Favor of, or Neutral Toward, the Plan Feature | ||
|
Under 30 Years Old |
30 Years Old and Over |
|
| Automatic enrollment | 84% | 72% |
| Automatic contribution escalation1 | 86% | 70% |
| Combination automatic enrollment and automatic contribution escalation2 | 74% | 65% |
| Appeal of TDFs3 | 97% | 87% |
| Reenrollment | 93% | 79% |
Source: J.P. Morgan Plan Participant Research 2016
1 Annual increases of 2% of salary up to 10%
2 Starting contributions at 6% with automatic increases of 2% every year until contributions reach about 10% of pay
3 Appeal of TDF percentage shows those who find TDFs “somewhat” or “very” appealing
J.P. Morgan said in the research report that the results showed that the youngest participants seem very receptive to the knowledge, tools, and guidance that employers and their plan advisers can provide, with many of these participants recognizing the challenge they face in saving enough for a retirement 30 or more years away.
“These findings may help assure plan sponsors that their efforts to strengthen their plans and proactively place employees on a solid path to a secure retirement will likely be met with support among current and future generations of participants,” the investment management firm said.
| Jane Meacham is the editor of BLR’s retirement plan compliance publications. She has nearly 30 years’ experience as a writer/editor of financial services news. |