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Retirement Plan Design Features Significantly Increase Participation and Savings

New research from The Principal and employer report evaluate success of retirement plans

July 17, 2013 (Des Moines, Iowa) — New research from the Principal Financial Group® shows retirement plan participation rates increase dramatically — up to 70 percent — when plans use key design features[1]. Employee participation rates increase as employers add more of the key features — automatic enrollment, automatic increases, online deferral changes or employer contribution. Retirement plans with at least two key features of any combination have an average total participant savings rate of 11 percent[2].

In analyzing more than 25,000 retirement plans, The Principal examined the impact of key plan design features on participation and savings rates. The results are part of a new retirement readiness initiative and customized plan sponsor Retirement Readiness Report designed to help employers understand how well participants are saving for retirement and how plan design features can help increase savings rates.

"The true measure of retirement plan success is based on whether employees are saving enough to have adequate income in retirement," said Jerry Patterson, senior vice president of retirement income strategy at The Principal®. "Our analysis shows most Americans need to save in general between 11 and 15 percent, including employer contributions, over an entire working career to replace 85 percent of income in retirement. This new research identifies plan design features that can encourage employees to save at those higher levels."

The Principal Retirement Readiness initiative is a new way of thinking about retirement planning that focuses on income replacement to help American workers achieve a higher level of income at retirement. The three-step approach to retirement readiness includes: strategic measurement, meaningful plan design changes and goal-driven participant education.

Tracking Success

The new, customized Retirement Readiness Report from The Principal is the first step and shows employers how many employees are on track to replace a sufficient level of income in retirement. If employees are falling short, the report offers best practices on plan design changes that, based on the research from The Principal, have been shown to increase savings.

"This report may be a wakeup call for some employers when they see how many of their employees are not adequately financially prepared for their retirement," notes Patterson. "The good news is simple plan design changes and a goal-driven approach can be powerful motivators to boost participation and savings. It's a better return on investment for the employer because, for often no additional cost, their employees become much better prepared for their retirement."

To make the largest impact on savings, The Principal recommends the following best practices:

  • Automatic enrollment for all employees at 6 percent deferral
  • Automatic annual increases of at least 1 percent annually
  • Online deferral changes available to participants
  • Employer contribution or match

For more news and insights from The Principal, connect with us on Twitter at

About the Principal Financial Group

The Principal Financial Group® (The Principal ®)[3] is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $456.1 billion in assets under management[4] and serves some 19.1 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

Sample of 25,463 plans with services provided by the Principal Financial Group® using some combination of automatic enrollment, automatic escalation, an employer contribution and online deferral changes available for participants, as of 12/31/2012. Calculation compares difference between 46.52 percent with zero features and 79.38 percent with four features
Sample of 3,629 plans with services provided by The Principal® using at least two features (automatic enrollment, automatic escalation, an employer contribution, online deferral changes available for participants), as of 12/31/2012. Average 11 percent savings rate is rounded from 10.5 percent.
"The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
As of March 31, 2013.

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