Benefits November 22, 2005

Report Shows Workers Have Improved on Saving

November 22, 2005 (PLANSPONSOR.com) - In its report, "The Total View: Retirement Plan Trends and Forecast", The Principal Financial Group found that employee participation rates in their employers retirement plans are holding steady, while 401(k) deferral rates and overall account balances are increasing.
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In its press release, The Principal said that the average 401(k) salary deferral rate increased to 7% in 2004, up from 6.7% in 2003. Baby boomers and pre-retirees aged 50 and older are leading the trend deferring 8.4% of their income. Younger workers (20 – 34 year olds) lag behind, saving only 5.7% of their salary, according to The Principal’s findings. Boomers are also participating at a higher rate (73% versus an overall average of 67%). Younger workers again lag behind, with only 60% participating in their 401(k).

The increased savings combined with stronger market performance boosted average 401(k) account balances by 17% to $40,125 in 2004, up from $34,344 in 2003. Boomers and pre-retirees have the highest average account balances at just over $50,000 for those aged 50 – 64 and nearly $68,000 for those 65 and older.

Larry Zimpleman, president of Retirement and Investor Services at The Principal, said in the release that part of the reason retirement savings are on an upward swing are because of efforts to keep it simple . “Where plan sponsors have adopted simplified enrollment and easy to use tools such as lifecycle funds, professionally managed accounts, and automatic salary deferral step-up programs we are seeing dramatic improvements,” he said.

The number of The Principal plan sponsors offering automatic enrollment more than doubled from 2003 to 2004. The use of life cycle investment options also grew in 2004 and continued to escalate in 2005, with recent data showing that nearly 70% of plan sponsors of The Principal are now offering life cycle investment options.

According to the release, The Principal’s report also says:

  • While women tend to participate in their retirement plans slightly more than men, (69% versus 67%), men are saving more. Men defer 7.2% of their salary versus women at 6.8%. The average 401(k) account balance for a man ($42,227) is nearly double that of the average 401(k) account balance for a woman ($23,373).
  • When employers offer a 100% match of worker’s contributions, participation soars to 76% compared to an average participation rate of 61% for plans with a 25% match. The Total View study also found better savings behavior when employers offer more than one retirement plan compared to a stand-alone 401(k) plan. Employers with multiple plans saw a 4% increase in average deferral rates, a 7% increase in 401(k) plan participation, and an 11% increase in 401(k) account balances.
  • The report showed that the majority of participants (85%) facing a rollover because of a job change or retirement kept retirement funds invested rather than take cash.
  • The Principal found that employers with multiple plans are increasingly consolidating those programs with one service provider as a total retirement solution to save time and money. In the past year the number of plans added to create a total retirement solution at The Principal has increased nearly 300% comparing 2004 to August 2005.

The report can be viewed here .

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