Retirement Plan Technology Boosts Plan Effectiveness
Retirement plan technology is on the verge of making retirement plans more effective. Traditional 403b and 401k plans have helped millions of workers to save for their own future. Now, employers now have an opportunity to help take the workforce savings accounts to the next level by providing plan participants with access to more retirement plan technology and tools. New retirement plan technology includes advice and managed account services.
According to new research from Charles Schwab, as cited in Employee Benefit News, two-thirds of participants in employer-sponsored retirement plans see themselves as savers, not investors. Despite the fact that the workforce collectively thinks it needs to save $1.7 million on average to retire, many are not investing enough in employer-sponsored retirement plans to reach that goal. In addition, many respondents to the Schwab survey said that their employer-sponsored retirement plan was their first experience with investing. Surprisingly, outside of a qualified plan structure, employer-sponsored retirement plan participants are more likely to use a savings account to prepare for retirement than any type of investment account.
There seems to be a disconnect in the workforce between passive and proactive participation in employer-sponsored retirement plans. As EBN noted, many participants take a “set it and forget it” approach to their employer-sponsored retirement plan. Schwab found that less than half of the employees it surveyed have increased their deferral rate in the past two years. When asked how much they chose to contribute to their employer-sponsored retirement plan initially, 55% said they chose an amount they were comfortable with, 36% contributed enough to get their employer match, and 8% were automatically enrolled at a default contribution rate by their employer.
Employers can help plan participants by providing or guiding workers to retirement plan technology, tools and services to help them better understand the options available to them via their employer-sponsored retirement plan. Per the Schwab study, employees say they would feel confident in making the right financial decisions with the guidance of a financial professional. However, only half (52%) of participants said they believed their situation warranted financial advice.
Employees said they could use help determining the right retirement age, calculating how much they’ll need in retirement, 401(k) investment advice, and figuring out what their expenses will be in retirement. In addition, employees want to get that help from retirement plan technology offered either within or in tandem with their employer-sponsored retirement plan. Of those employees who used an online retirement calculator, 71% said they felt encouraged and wanted to learn more, and 61% took positive actions related to their finances.
Online retirement calculators may have an even more powerful impact on employer-sponsored retirement plan participant behaviors. After using one, 48% of the Schwab survey respondents said they increased their 401k contributions, 29% changed their spending habits and 28% accessed additional online advice.
Online retirement plan technology and tools can help employer-sponsored retirement plan participants to assess their current financial situation and take appropriate action to improve it. Plan sponsors should consider ways to tap into retirement plan technology and online tools to augment their current employer-sponsored retirement plan offerings. By doing so, sponsors can help employees to view themselves not as passive savers, but as true owners of their financial future.