Use of Automatic Retirement Savings Tools Triples in One Year
November 19, 2007 (Des Moines, Iowa) — Overwhelmed by the many decisions involved in retirement planning, U.S. workers—and their employers—are turning in droves to automatic savings tools like automatic enrollment, automatic deferral increases and lifecycle investment options. In just one year, the number of employer clients offering at least one auto-savings tool nearly tripled to more than 30,000, according to The Total View, the annual report on retirement savings behavior in plans serviced by the Principal Financial Group®. The report also shows that plans offering automatic options have higher participation rates and higher savings rates than traditional plans.
"While national savings rates are still critically low, data from The Total View proves that automatic, do-it-for-me tools are helping to move the savings needle in the right direction. We saw that in 2005, and the positive trend continued—and even accelerated—in 2006," said Barrie Christman, vice president of Individual Investor Services, Retirement and Investor Services at The Principal®.
Based on data from the 2006 plan year, The Total View report provides an in-depth look at retirement program trends among more than 38,600 full service retirement plan sponsors and approximately 3.5 million participants in plans serviced by The Principal. One of the most comprehensive reports available on retirement plan trends, The Total View covers the four most common retirement plan designs: defined contribution, defined benefit, nonqualified and employee stock ownership plans (ESOPs).
Easy does it
"'Keep it simple' rules the day," said Christman. "Employees often become so frustrated by the magnitude of the decisions they are asked to make for retirement planning that they simply do nothing. Do-it-for-me features break through decision paralysis and put inertia to work for savers. It's no wonder that employers and employees alike have embraced simplicity at every turn."
The Total View shows tremendous increases in the use of the following automatic, do-it-for-me tools:
- Automatic enrollment: doubled in 2006 with the average participation rate 14 percent higher than traditional plans.
- Automatic annual increases: tripled with nearly 30,000 participants choosing to have their savings rate increased automatically each year. The average automatic increase selected was nearly 1.3 percent for an average of five years.
- Simple enrollment forms: tripled in 2006 among plan sponsors not using automatic enrollment. Nearly 11,000 plans replaced complicated enrollment forms with a simplified, patented pending process called Easy Enrollment. It allows participants to sign up in just three easy steps.
- Pre-set savings rate: quadrupled with nearly 7,000 plans offering employees a suggested beginning savings rate. The suggested salary deferral rate is pre-set by their employer—typically to coincide with the employer match. The average starting deferral rate was nearly five percent.
- Lifecycle investment options: Eighty percent of plan sponsors offered a lifecycle option in 2006—twice as many as in 2004. The number of plan sponsors who chose a lifecycle option as their retirement plan's default option more than tripled in 2006 from the previous year.
One-on-one meetings get the message across
The Total View reports that participation increased significantly—by nearly 12 percent—in plans that offered personalized, one-on-one assistance at the worksite. By the end of 2006, 475 plan sponsors were making this one-of-a-kind program available to participants. Through Worksite Solutions from The Principal, 35,000 participants met one-on-one with salaried benefits specialists on company time—free of charge to the employee and the plan sponsor.
Other key findings
Other important findings from The Total View include:
- Gender gap: Females participated in their employer retirement plan at a slightly higher rate than men but had significantly smaller nest eggs. The average account balance for men was 77 percent higher than the average account balance for women.
- Wage gap: Employees who earned more than $30,000 a year participated in the retirement plan at twice the rate of those who earned less than $30,000. The average account balance for highly compensated employees (about $157,000 per year) was nearly five times that of non-highly compensated employees ($32,000).
- Rolling over vs. cashing out: Younger savers (age 34 and under) were more likely than any other age group to cash out their retirement account when changing jobs. Twenty percent of the assets of younger job changers were taken as cash. This compares to only 7 percent of retiree assets cashed out in 2006. Overall, the vast majority of assets (90 percent) belonging to job changers remained invested in a retirement account in 2006.
About The Total View
The Total View is based on data for the 2006 calendar year, collected from more than 38,600 full-service retirement plans and approximately 3.5 million participants served by The Principal. The report covers four core retirement plan designs: defined contribution, including 401(k) and 403(b); defined benefit; nonqualified and Employee Stock Ownership Plan (ESOP). To download the full report, visit the Principal Research Center at http://www.principal.com/about/news/research.htm#retirement.
About the Principal Financial Group
The Principal Financial Group® (The Principal®)1 is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies and national network of financial professionals. A member of the Fortune 500, the Principal Financial Group has $306 billion in assets under management2 and serves some 18.3 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
Insurance issued by Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, member SIPC and/or independent broker dealers. Securities sold by a Princor Registered Representative are offered through Princor®. Bank Products offered through Principal Bank®, member FDIC, Equal Housing Lender. Principal Life, Princor and Principal Bank are members of the Principal Financial Group, Des Moines IA 50392.
Insurance and securities are not insured by the FDIC; are not obligations or deposits of Principal Bank nor guaranteed by Principal Bank; and are subject to investment risks, including possible loss of the principal invested.
1) "The Principal Financial Group" and "The Principal" are registered trademarks of Principal Financial Services, Inc., a member of the Principal Financial Group.
2) As of September 30, 2007.
