Plan design continued to be one of the
strongest drivers of outcomes, led by features such as auto-enrollment and auto-increases with opt-out as well as adoption
of higher default deferral rates, Roth contributions, and target date products.
Adoption of auto-solutions has been
steadily growing since 2006, and the
proven successes of auto-enrollment
and auto-increase features continue to
strengthen their popularity among plans
at T. Rowe Price.
According to the report, the average
participation rate in auto-enrollment
plans is over 42 percentage points higher
than in plans without auto-enrollment
(87% participation for auto-enrollment
plans compared with 45.4% for non-auto-enrollment plans) in 2017.
The report also found that participation in auto-increases is more than five
times higher in plans that use the opt-out versus opt-in option.
For the first time, the number of retirement plans with a 6% default deferral
rate surpassed the number of plans with
a 3% default rate, which is considered
the industry standard, the report found.
Also, 32.4% of plans had a default
deferral rate of 6%, compared to the
31.9% that had a default rate of 3%.
The study also found that the adoption of Roth contributions increased by
nearly 55% since 2014, and 67% of plans
offered Roth contributions in 2017, up
from 60.3% in 2016.
Participant usage has grown as well,
but at a slower pace, increasing by just
under 19% from 2014 to 2017, according
to the report.
Nearly every age group saw increases
in the percentage of participants making Roth contributions, with the largest
contributors between the ages of 20
and 40. The report found that usage has
been driven primarily by younger participants age 20 to 40.
“This could demonstrate an increased
understanding of the tax benefits Roth
offers: Younger participants may be tak-
ing advantage of their comparatively
lower salaries (and, therefore, lower
income tax brackets) by paying taxes on
their contributions now so they can ben-
efit from potentially tax-free earnings in
the future,” according to the report.
Plan sponsor adoption of target date
funds reached a 10-year high, rising to
94% in 2017, according to the report.
For the first time, target date funds
accounted for the largest percentage of
plan assets under management, surpass-
ing all other investment types.
More than 41% of total assets under
management in 2017 were invested in
target date products, with 34.8% in stock
investments. In fact, the report finds that
investments in target date products sur-
passed stock investments in nearly every
plan-size-related category in 2017, with
just a few exceptions in smaller plans.
For instance, in plans with fewer than
1,000 participants, stock investments averaged 42.9% compared with 37.7% for target date products. In plans with less than
$5 million in assets under management,
stock investments averaged 39.9% compared with 39.7% for target date products.
The old saying “Live fast, die young and
leave a good-looking corpse” may be
soaking into the millennial generation.
PGIM Investments has found in its 2018
Retirement Preparedness Survey that a
majority of millennials (62%) planned to
retire only when they had enough money,
but 31% were not saving for retirement at
all as they didn’t see “the point of plan-
ning for retirement because anything can
happen between now and then.”
The study also found 25% of all pre-
retirees were not sure how much they
needed to save to retire and gave them-
selves a “C” for preparedness.
These findings are especially troublesome as retirement income is becoming
less predictable with the reduction in pension plans and questions about the continuity of Social Security. The survey also
found that the Gen Xers had more concern
about retirement than the millennials.
They estimated they would need $2.5 million on average to retire, while millennials
projected they would need $1.1 million.
The study of 1,514 adults, conducted
online by Harris Poll between Jan. 18
and Feb. 1, was commissioned by PGIM
Investments, the investment manufacturing and distribution arm of PGIM,
the global asset management business
of Prudential Financial. It also found
that millennials believe “people will no
longer retire comfortably in the future,”
and almost 66% believed that full-time
employment will largely disappear and
that freelancers will make up 75% or
more of the U.S. workforce.
AMERICANS RETHINK EXPECTED SOURCES OF INCOME
According to a study commissioned by PGIM Investments and conducted by The Harris Poll from January 18 through February 1, 2018
among respondents who met the following criteria: U.S. residents; age 21+; employed full-time, part-time, self-employed, stay at home
spouse or retired; and primary or shared financial decision maker for household.
Social Security Savings Account/Cash Pension Plan Full or Part-Time Work
Retirees Pre-Retiree Boomers
Pre-Retiree Gen X Pre-Retiree Millennials