Only 4% of plan sponsors have established goals to engage workers younger than 35 in their defined contribution plans, even though they know the younger generation's participation and contribution rates lag their older colleagues, a survey by Greenwich Associates for Northern Trust finds.
The survey was conducted among 45 large plan sponsors with 1.5 million participants and $175 billion in assets, and 11 leading DC plan consultants.
Only 24% of 401(k) sponsors have strategies to increase participation by different age groups, the survey found. Nearly 40% of sponsors and a majority of consultants are either neutral or not confident that their plan will adequately prepare these younger workers for retirement.
The report suggested that sponsors develop educational materials for the younger crowd, particularly using social networking. It also suggested that the 91% of sponsors that allow participants to take loans on their savings rethink that policy, since those under age 35 are most inclined to have outstanding loans.
Since 86% of sponsors said that automatic enrollment, auto-escalation and similar features have proven effective in getting younger participants on board, the report suggested that sponsors embrace more of these features.
As well, sponsors could offer tools to participants to help them select the right target-date fund for them, based on age, savings and risk tolerance.
“Employers should focus on this group of younger workers for two reasons,” said Bob Browne, chief investment officer of Northern Trust. “First, this is a generation of workers for whom company-sponsored DC and 401(k) plans represent the primary, and in many cases, the only, vehicle for retirement savings. Second, these young workers still have time to make and implement choices that will have a meaningful, positive effect on their financial situation later in life.”
Jim Danaher, managing director of the defined contribution solutions group at Northern Trust, added: “Setting goals and building marketing strategies to reach these younger workers is a critical early step in improving DC plan funding effectiveness. Workers who wait until the age of 40 or older to begin saving for retirement very likely will fall short of their financial goals. By contrast, workers who begin participating in DC plans in their 20s or even early 30s have an opportunity to achieve their goals—if they stay engaged and make the right decisions.”
This research is the second in a Northern Trust series on “The Path Forward” for defined contribution plan challenges and solutions.
-- This article first appeared on Money Management Executive.