Plan Design; Simpler Flexibility Encourages Engagement. Employees are more engaged with their employer-sponsored retirement plans, resulting in higher account balances and increased contributions and deferral rates. In addition, workers have additional choice and control when it comes to managing their finances, thanks to employers who’ve simplified their retirement plan designs and chosen to build more flexibility into their benefits programs with offerings like Roth 401(k)s and health savings accounts (HSAs).
These are some of the key findings from the Bank of America Merrill Lynch 2017 Plan Wellness Scorecard. A majority of the data is encouraging.*
For example, employee engagement grew by double digits in retirement plans where BAML wellness solutions were offered. Employee contributions increased 20%, and deferral rate changes grew 18%. Plan assets were also up 17%, along with a 6% rise in new enrollments. BAML attributes much of the heightened engagement to sponsors who’ve encouraged additional employee education opportunities via onsite meetings, webcasts and one-on-one consultations with plan advisors.
What’s more, sponsors are using plan design to foster financial wellness in the workplace, and employees are taking notice. In fact, two-thirds of employees said their employer has been “somewhat influential” in convincing them to save for retirement.
BAML found an obvious connection between heightened employee engagement and the adoption of simpler plan design features such as auto enrollment and automatic contribution increases. Plans that adopted such features rose an incredible 153% in 2016. Clearly, the idea that simplifying plan engagement fosters more of it is catching on.
Additionally, nearly half — 49% of plans — offered auto enrollment, with 87% combining auto enrollment and auto increases. Interestingly, BAML found that 97% of auto-enrolled employees didn’t opt out.
The uptake in auto escalation grew 24% year over year and a noteworthy 172% since 2012. As of 2016, BAML plans had 314,521 participants with automatic contribution increases. What’s more, higher automatic default rates positively correlated with participation levels, with participation peaking at 87% at a 7% default contribution rate.
Use of digital tools is also becoming more prevalent, BAML found. There were 53 million website visits in 2016, a 10% increase over 2015. In addition, mobile sessions came in at 3.8 million, rising 14% year over year.
Furthermore, Roth 401(k) usage is on the rise. Of the 57% of BAML plans that offered a Roth 401(k) option, there was a 31% year over year increase in the number of employees contributing to it, and contributions increased 25% vs. 16% for pre-tax contributions. Moreover, the idea of contributing after-tax money seems to appeal to younger generations — employees age 40 or younger accounted for 56.5% of Roth 401(k) deferrals.
Finally, increasing numbers of employees are finding health savings accounts attractive for putting aside pre-tax savings for future medical expenses. HSA balances grew by 36% in 2016 vs. 2015, and the number of employees contributing grew 21% year over year.
This encouraging data reveals some key best practices for plan sponsors:
- Review your plan design. Consider adding features like auto-enrollment and automatic contribution escalation if your plan doesn’t already include them. These benefits have been shown to help increase employee engagement and overall contribution rates.
- Think about offering a Roth 401(k) option. Doing so in a traditional 401(k) plan will give employees greater flexibility to contribute how they want, and allow employees of all ages, especially younger ones, to account for the impact of potential future tax hikes with the tax-free withdrawal benefits of a Roth 401(k).
- Make digital tools accessible. Most employees today are digitally inclined, and giving them these tools to help manage their finances is more likely to result in higher engagement and improved saving behaviors.
- Consider benefits that go beyond retirement preparation. Benefits like health savings accounts (HSAs) can help employees plan better for current and future medical costs.
*Scorecard data is as of 12/31/16. The BAML 2017 Wellness Scorecard was released in June 2017.
