July 12, 2012
As important as it is to save for retirement, it is as important to educate oneself and understand one's options when it comes to the different retirement plans and investment strategies available. A recent study revealed that thanks to automated retirement features, though participation in retirement plans has improved, participant communication regarding retirement savings has not.
As covered by a recent press release, a study co-sponsored by Lincoln Financial and Retirement Made Simpler revealed that automated enrollment features encourage individuals to save for retirement. Researchers surveyed 201 executives who manage 401(k) and 403(b) retirement plans with assets totalling at least $10 million.
The Lincoln Financial Group explains that researchers studied the perspective of plan sponsors who have automatic enrollment, automatic escalation, and/or Qualified Default Investment Alternative (QDIA). Results revealed that a large percentage of plan sponsors see automatic features as effective and successful. LifeHealthPro states that according to 94 percent of sponsors, automatic enrollment features help increase participation in employer-sponsored retirement plans and improve deferral rates and investment performance. Eighty five percent of sponsors mention that automatic features particularly help individuals who consider themselves less educated on retirement issues.
Insurers and plan sponsors alike assert the advantages of automated retirement features. Ninety seven percent of sponsors who have implemented a bundle of automatic enrollment, automatic escalation, and QDIA believe that the advantages of such plans outweigh the disadvantages. The President of Lincoln Financial Group's Retirement Plan Services, Chuck Cornelio, affirms the conclusion that automated plans are very effective, and "employers who offer these features in their plans will help Americans take charge of their retirement." However, despite the advantages of automated retirement features, the study reveals that less than half of plan sponsors have adopted automated enrollment and escalation. Furthermore, increased automation has not been accompanied with increased communication.
The press release explains that despite new communication channels, only 51 percent of plan sponsors offer customized communication to participants and 50 percent have significantly revised communication channels since automated retirement plan features arose. In light of these results, sponsors concur that their communication strategies must change with increased automation. Specifically, they must communicate with plan participants more regarding their savings behavior and strategies. Cornelio asserts that "conversations need to be more personalized and address each employee's specific needs, goals, and lifestyles."
Cornelio further comments on the overall effectiveness of automated retirement plans: "Just like any other plan design innovation, auto solutions do not mean you can simply set it and forget it. Employees need personalized and outcomes-based communication and education to meet their goals and boost their retirement readiness."
Compiled by Aneesha Jhingan
"New Study Affirms Auto Solutions Boost Retirement Readiness," prnewswire.com, July 11, 2012
"Paradigm Shift Ahead: Retirement Plan Communication in an Auto-Features World," lfg.com
"Auto-Enrollment Found to Drive Participation in Retirement Plans," lifehealthpro.com, July 11, 2012, Liz Festa