Fredrik Axsater, managing director and global head of defined contribution plans at State Street Global Advisors (SSgA) in San Francisco, tells PLANSPONSOR, “Automatic features, such as auto-enrollment and auto-escalation, are having a significant and positive impact on DC plans in the United States.”
While plan participation is increasing, he says, plan sponsors should not overlook the importance of encouraging participants to start saving earlier for retirement and deferring more into their DC accounts. DC plans in the United States can learn from their counterparts abroad, Axsater says, noting that the UK is, in some ways, at the cutting edge of plan design regarding automatic enrollment. By law, DC employers in the UK must automatically enroll workers into workplace retirement plans if the workers are age 22 to the state pension age, earn more than £10,000 a year, and work in the UK.
“With automatic features improving participation levels, it is probably a good idea for U.S. plan sponsors to carefully watch what’s going on in the UK with DC plans, especially since UK DC plans have a low opt-out rate of only 10%,” Axsater says. He adds that it is important to remember plan sponsors and relevant government agencies set an example for participants. Participants want to know what they have to do to achieve success in saving enough for retirement, and need plan sponsors and others to tell them what those standards are, he contends.
Axsater also suggests plan sponsors should provide participants with good choices for investment options, making sure they are diversified enough and are age appropriate. He points to the growing use of target-date funds as a good example of such well-diversified and age-appropriate investment offerings. Many participants have a rather straightforward mindset about retirement, says Axsater, wanting to know what amount they have to reach in order to retire and not necessarily wanting to become an investing expert to reach that amount.
SSgA’s recently released Transatlantic DC Investor Survey finds about 65% of U.S. participants are satisfied with their DC plans, while in the United Kingdom and Ireland it’s 45% and 31%, respectively, Axsater says. But, he notes that in the UK, there is greater DC plan participation than in the past, and he believes the percentage of participants who say they are satisfied with their DC plan will increase over the next few years.
Axsater concludes that anything plan sponsors can do to make the process of saving easier for participants is a step towards boosting their confidence about retirement and lessening their feelings of financial uncertainty.