Higher numbers of Millennials enroll in their company-sponsored retirement plans if their company automatically enrolls them in it, according to new statistics from Wells Fargo Retirement. In companies that do not automatically enroll eligible employees, just 13.4 percent of Millennials participate in the plan.
For its research, Wells Fargo analyzed a subset of 1 million eligible Millennial participants in retirement plans that Wells Fargo administers.
The research also found that Millennials in plans that offer automatic enrollment participate nearly five times as often as those in plans without auto enroll. Millennial participation has dropped 22 percent in the past year in plans without auto enrollment.
This younger generation’s savings rates are frequently low with 47.3 percent of those who do participate contributing 3 percent of their salary or less. This is slightly better than a year ago when that figure was 49.7 percent. Gen X was at 32.8 percent and Baby Boomers were at 24.9 percent.
“It is encouraging to see that workers in the Millennial generation are getting a head start on their retirement savings; much of this may be attributed to automatic enrollment features in their employers’ 401(k) plans,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust. “However, the low savings rates—the amount they are contributing to their retirement plan—are concerning. Getting into the plan is the first step, but saving at a rate of 3 percent or less isn’t going to get them to a financially viable retirement.”
This shows the importance of auto escalation features in retirement plans. If a plan enrolls at 3 percent, there needs to be a steady increase in that contribution amount from year to year to make a difference when it comes to how much is saved for retirement. Those who start early and increase their contribution amount over time will end up with more retirement savings than those who get into the plan but save the same amount the whole time.
“Most people starting out in their careers are more focused on student debt and daily finances, which is why automatic plan features can be so helpful to getting people off to a good start,” Nordquist said.
It can be hard to get younger people’s attention, which is why it is important for companies to interact with participants when, where and how they want, she said. Nordquist recommends expanding a company’s social media efforts, enhancing delivery preference options available to participants, increasing the frequency and delivery options for webinars and using QR codes for smart phones.
Managed investment products have steadily increased among all generations, with nearly 86 percent of Millennials using them. Use of these products by the Millennials has increased 2.9 percent, compared to 4.3 percent for Generation X and 4.7 percent for Boomers.
Wells Fargo Institutional Retirement and Trust provides total retirement management, investments and trust and custody solutions for institutional clients.