The Path Forward: Engaging the Younger Employee in DC Plan Participation, notes that workers under age 35 are likely to be more dependent on DC plans for their retirement savings than previous generations, as the future appears less certain for both defined benefit pension plans and Social Security. While the 75 million-strong Baby Boomer generation receives extra attention as it moves closer to retirement, Northern Trust’s report argues that the time has come for employers to direct time and resources specifically to the approximately 61.5 million workers who are under age 35.
While most plan sponsors expressed confidence in their plan’s ability to prepare younger workers for retirement, nearly 40% of plan sponsors and a majority of consultants interviewed were neutral or less than confident on that question. The study indicates that plan sponsors could take a number of steps in the near, medium, and longer term to better engage these younger workers.
According to the study, only 4% of plan sponsors participating had established specific goals for engaging younger workers in their DC plans, and just 24% have strategies aimed at increasing participation by different age groups.
Plan sponsors reported that under-35 workers lag their older colleagues in both participation rates and contribution levels; respondents also noted that younger workers are typically more receptive to new media such as social networking as an education tool. Ninety-one percent of plan sponsors allow participants to take loans on their retirement savings, and participants under age 35 were more likely to have loans outstanding.
Eighty-six percent of respondents say that auto-enrollment, auto-escalation, and similar features have proven effective for younger employees. The research also found that under-35 employees are highly likely to select the target date investment option. Also, 63% of those participating in the study believe DC plan participation should be mandatory, which would have a disproportionate impact on younger workers, who enroll at lower rates than those over age 35.
“Setting goals and building marketing strategies to reach these younger workers is a critical early step in improving DC plan funding effectiveness,” said Jim Danaher, Managing Director of the Defined Contribution Solutions Group at Northern Trust, in a press release. “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.”