From Participation to Engagement

August 25, 2014 ( – Retirement plan participants who receive regular advice from a financial professional are more aggressive and engaged when it comes to pursuing individualized savings targets, a new study shows.

The results of a Natixis Global Asset Management study reveal even those who receive regular financial advice often fall short of self-identified savings targets for retirement, however. On average, 401(k) participants across all age groups are saving about 8.6% of annual salary for retirement. Savings rates are somewhat higher for those with a professional advice relationship, according to the study, but even this group struggles to achieve retirement readiness.

One cause for celebration, Natixis says, is that participation in employer-sponsored retirement plans is substantial. About 90% of all employees with access to workplace retirement programs elect to participate. Natixis cites tax incentives, matching contributions by employers and automatic enrollment as factors underlying high participation rates.

Another positive point in the research is that contribution rates tend to rise with advice. On average, advised investors put 9.5% of annual salary into a defined contribution (DC) retirement plan, compared with 7.8% by those without advisers. Natixis says advised investors are also more likely to have set an individualized savings target—with more than seven in 10 (74%) advised participants saying they know what their 401(k) balance should be by the time they retire. Just 54% of workers without advisers say the same.

Ed Farrington, an executive vice president of Natixis Global Asset Management, tells PLANSPONSOR that the mixed study findings show the DC retirement industry has a lot of work to do before it can ensure retirement readiness for most Americans. Advisers and sponsors have a critical role to play in helping participants understand both savings needs and strategies for maximizing readiness, he adds.

“Above all, this research shows that we need to start thinking about how to move beyond participation rates and start building true engagement with DC retirement benefits,” Farrington says. “We know that plan providers have done a great job building powerful tools and account management technologies that make participation easier, but we clearly need more education about why these tools exist and how they can be helpful.”

Indeed, even with the generally encouraging level of participation and savings, many workplace retirement savers aren’t on course to meet their savings targets, Farrington warns. The potential shortfall is especially notable among Baby Boomers, identified in this study as individuals ages 50 to 67. Many in this age group lacked access to retirement plans earlier in their careers, the research shows, and even if they did have access, many Boomers contributed significantly less to their 401(k)s than they do now.

Specifically, the survey found 33% of Boomers have put aside less than $50,000 for retirement. In comparison, 41% of participants in the Millennial or Generation Y group (ages 18 to 33) already have put aside $50,000. Farrington says this is perhaps the most troubling statistic found in the study, especially considering that more than eight in 10 (84%) plan participants across all age groups say their 401(k) account will be their biggest source of retirement income.

“The Baby Boomers with less than $50,000 are going to struggle to retire in the traditional sense,” he explains. “Some say they will delay retirement, others that they will rely on the government or their family members for sources of supplemental income. It’s unclear how they will be able to fill the substantial savings gap.” (See “Baby Boomers Caught in the Middle.”)

But the story is not all bad for Baby Boomers, Farrington adds. On average, Baby Boomers have saved about $262,541 in DC accounts. While this is still only about one-third of the $805,398 Natixis predicts the typical Baby Boomer will need for a lifetime of retirement income, many Boomers will draw at least small amounts of supplementary income from sources like Social Security or defined benefit pension benefits accrued earlier in their careers.

Younger investors are also struggling to stay on target for a successful retirement, Natixis says. Members of Generation X (ages 34 to 49) have saved $206,866 toward their goal of just over $1 million. Millennials average $91,215 in their DC accounts. According to Natixis, Millennials say they’ll need about $822,000 for retirement—a target which may be too low, given their ages and expectations of inflation and increasing health care expenses (see “Personal Accountability in a DC World”).

The good news is that workers say their employers provide a great deal of retirement information and tools. Among the most popular materials available to them are printed education documents, retirement calculators and interactive planning tools. However, relatively few investors make full use of the offerings, Natixis says.

The most popular tool on many 401(k) websites—a retirement income calculator—has been used by only 38% of participants. Likewise, slightly more than half (51%) say their employers offer personalized performance benchmarks, such as displaying a rate of progress toward a retirement savings goal. But only 23% acknowledge using them.

Farrington says these results demonstrate that, without a proper advice relationship, education and tools provided to retirement plan participants may not be leading them to save enough to ensure good outcomes. Part of the reason for the disconnection, Natixis says, is that some investors don’t understand the information put before them. More than four in 10 (43%) say their employer’s materials are difficult to understand. Those working without advisers are more likely to have issues with their employer’s information (49%, compared with 37% of those who do use advisers).

Investors, both with and without an adviser, display substantial uncertainty about investments and investment decisionmaking. In fact, 33% of all participants say they don’t know where their money is being invested. Farrington says this figure cuts across both advised and non-advised participants, “so clearly there is more work ahead for advisers especially.”

More information about the survey results is available on the Natixis website.