UpFront | Published in September 2016

Motivating 401(k) Participants

Many participants admitted spending simply too little time thinking about and planning for retirement.

By Rebecca Moore | September 2016
Major reasons 401(k) participants cite for not saving more money now for retirement are needing to pay off debt (49%); earning too little (36%); and having other spending priorities (26%), according to a survey by J.P. Morgan.
Many participants know they do not save enough—68% said their 2015 contributions were below what they should have been. In addition, 81% said they are interested in doing financial planning for retirement, but nearly half (45%) do not have a plan.
Part of the problem may be that 48% admitted spending simply too little time thinking about and planning for retirement. The survey also found that many participants need to be better engaged in managing their 401(k)—28% have never rebalanced their account, 31% have never made a change to their initial choice of investment options, and 18% have never increased their contribution amount.
Individuals vary in what motivates them to save, but 67% agreed that helping them “understand their numbers”—how much more they should be saving or how much they should have in their retirement plan today to ensure a financially secure retirement—is an effective tool for employers to use. Over half (52%) the participants surveyed look to their employer for a sense of how much to contribute to their plan, while 41% think they should be notified if they need to be saving more.
Only 38% are very or extremely confident they know how much to invest in their 401(k) each year to reach their retirement goals. Only 34% are very or extremely confident they know how to estimate the size of their 401(k) account at retirement if they continue saving at the same level, and only 30% are confident they can calculate how much monthly income their savings will provide.
According to J.P. Morgan, participants appear receptive to giving up some degree of autonomy to instead have access to simplified investment choices, plan features and strategies that promote a disciplined approach to saving, and improved asset allocation.
Roughly three-quarters of participants are in favor of, or neutral toward, automatic enrollment (75%) and automatic contribution escalation (74%). Roughly two-thirds (67%) are in favor of, or neutral toward, a combination of those features. A large majority (90%) find target-date funds (TDFs) appealing. Additionally, most (82%) are in favor of, or neutral toward, re-enrollment.
Participants under 30 are even stronger proponents of automatic 401(k)s.
Additionally, results for “do it yourself” investors—despite this group’s stated preference for a more independent approach—do not vary significantly from the others’ averages.
Among those auto-enrolled in their plan, less than 1% opted out, nearly all (96%) are satisfied, and nearly one-third (31%) said they would not be enrolled, otherwise. Among those whose contribution amounts are or were automatically increased by 1% to 2% each year, nearly all are satisfied (97%), and 15% said they were unlikely to have escalated their contributions if not for this automatic feature.
Among those who went through a re-enrollment, 73% allowed their assets to be moved to a TDF, and 99% of those whose funds were moved are satisfied.
J.P. Morgan Asset Management partnered with Mathew Greenwald & Associates to conduct an online survey of 1,001 defined contribution plan participants, this past January 12 through 25.