New study shows that ‘high influence plans’ can help employees overcome the barriers to saving enough to retire
CHARLOTTE, N.C.--(BUSINESS WIRE)--A new report from Wells Fargo Institutional Retirement and Trust details
the specific features of a well-designed 401(k) plan that are most
effective in helping employees amass the savings they need to replace 80
percent of their income in retirement.
For the report, 2018 Driving Plan Health, Wells Fargo Institutional
Retirement and Trust analyzed more than 2,000 401(k) plans representing
more than 4 million eligible employees in a range of industries. (Refer
to the report for complete methodology information.) The company found
16 features that are most effective — and “high influence plans” use a
combination of the 16 to launch employees on the path to replace 80
percent of their pre-retirement income once they retire.
“When U.S. workers are saving in 401(k) plans that have the right
combination of features, we believe they have a significantly better
chance of amassing the savings they need to retire comfortably,” said
Mel Hooker of Wells Fargo Institutional Retirement and Trust. “While
saving and investing for retirement fall primarily on individuals, we
also found that the way businesses design their 401(k) plans for
employees can dramatically influence the decisions people make in
preparing for retirement.”
“Influence Factor”
Wells Fargo Institutional Retirement and Trust created “Influence
Factor” ratings for all of the 401(k) plans it administers to measure
the degree to which plan design incorporates key features that influence
things like plan participation, overall saving, and investment
diversification. Of the 16 features that exert influence, four seek to
generate the most positive outcomes:
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Automatic enrollment, with a default of 6 percent or more going
to the 401(k) and automatic annual re-enrollment.
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An opt-out option to increase the default to a rate of 10
percent or higher.
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Diversified investment offerings, such as a target-date fund.
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An above-average company match of at least 5 percent, or profit
sharing.
“When used together, these features address the psychological barriers,
or inertia, that tend to get in the way of a person’s path to a
well-funded retirement,” said Hooker. “Our research shows that effective
plan design helps render better outcomes for employees. When plans are
built with the right features, employees have a much better shot at
building the savings they need for retirement,” said Hooker.
Among the plans analyzed by Wells Fargo Institutional Retirement and
Trust, 10 percent are deemed to be high influence, plans in which
workers are on a closer path to 80 percent income replacement, which is
optimal. Participants in Wells Fargo high influence plans have a 64
percent income replacement compared to participants in a low influence
plan whose average income replacement falls to 48 percent.
“High influence plans are not concentrated in any one industry. Our
research shows many U.S. businesses can and do institute plans that have
positively influenced employee behavior. Yet even those companies with
the highest influence scores can make small changes that have a big
impact,” Hooker added.
For high influence plans, the participation rate is 89 percent, 55
percent of employees are contributing 10 percent of more (including
match), and 88 percent are appropriately diversified.
“We want employees to be in their 401(k) plan, but participation alone
is not enough. People have to raise their savings targets and should be
diversified to maximize investment growth potential. High influence
plans push employees in the right direction on all these fronts,” said
Hooker.
High influence plans in a bull market
Between August 2008 and August 2018, the U.S. stock market has been in a
recovery that has resulted in a cumulative return of 180 percent for
those invested in companies in the S&P 500 Index (which includes
dividends and capital gains). Ten years ago, if a company had a
qualified default investment alternative (QDIA), a diversified
investment vehicle and employed auto features, such as auto enrollment,
a worker with a beginning 401(k) balance of $80,000 with a combined
deferral and company match rate of 10 percent, would now have an account
balance of $237,000, an increase of 195 percent. This assumes a 7
percent investment return on a diversified portfolio.*
“Saving and investing regularly, along with a company match and
appropriate diversification, allows employees to create the nest egg
they will need in retirement. But not all 401(k) plans are created
equally, and our goal with this report is to show just how important it
is for businesses to design a high influence plan,” said Hooker.
* This information is hypothetical and is provided for informational
purposes only. It is not intended to represent any specific return,
yield, or investment, nor is it indicative of future results. Estimates
are based on the assumptions noted, do not guarantee or imply a
projection of actual results, and do not include the effect of taxes or
fees. Wells Fargo Institutional Retirement and Trust cannot guarantee
results under any savings or investment program and cannot guarantee
that you will meet your retirement savings goal.
Steady progress from participants
Wells Fargo Institutional Retirement and Trust’s five-year Plan
Health Index analysis, which examines trends from 2012 to 2017,
shows a 42 percent increase in employees meeting all three key savings
behaviors – participating in their 401(k) plans, saving at a rate of 10
percent or more including match, and are diversified. The Plan Health
Index is the percentage of eligible employees who meet the goals of
all of these savings behaviors.
Among findings in the 2018 Driving Plan Health report:
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Participation in 401(k) plans has increased 18 percent, with
millennials continuing to make the biggest gains.
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Savers contributing at a rate of 10 percent or higher have increased
11 percent. Baby boomers (46 percent) are more likely to contribute at
that rate, followed by Generation X (36 percent) and Millennials (29
percent).
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The majority of savers (80 percent), invest in a variety of asset
classes, with participants investing in a diversified portfolio up 13
percent.
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Among high influence plans, the Plan Health Index has improved by 62
percent over the past five years, and average balances have increased
30 percent.
Beyond plan design
Although plan design is the foundation and the most influential
component for engaging participants, businesses also should incorporate
effective communications and forward-thinking digital tools to help
employees overcome psychological barriers to saving — and help them take
action. Targeted participant communications and digital tools is likely
to encourage positive participant behavior. For example, having a peer
comparison tool with a simple “click here to change your deferral rate”
is an easy way to encourage participant action.
“From plan design to digital tools and participant communications, the
Driving Plan Health report demonstrates how U.S. companies can break
down psychological barriers and play a primary role in preparing workers
for retirement,” Hooker added.
About Wells Fargo Institutional Retirement and Trust
Wells Fargo Institutional Retirement and Trust is a national leader in
providing total retirement management, investments, and trust and
custody solutions tailored to meet the needs of institutional clients.
Wells Fargo Institutional Retirement and Trust ranks 10th based on plan
assets in the 2018 PLANSPONSOR Magazine Recordkeeping survey. Rankings
are based on total assets under administration. Data was provided by the
recordkeepers. This ranking excludes several recordkeepers that chose
not to respond. The ranking is not indicative of the recordkeepers past
or future performance. Wells Fargo Institutional Retirement and Trust
provides retirement plan services to 3.5 million participants
representing $389 billion in retirement plan assets (as of 6/30/18).
About Wells Fargo
Wells Fargo & Company (NYSE: WFC) is a diversified, community-based
financial services company with $1.9 trillion in assets. Wells Fargo’s
vision is to satisfy our customers’ financial needs and help them
succeed financially. Founded in 1852 and headquartered in San Francisco,
Wells Fargo provides banking, investment and mortgage products and
services, as well as consumer and commercial finance, through 7,950
locations, 13,000 ATMs, the internet (wellsfargo.com) and mobile
banking, and has offices in 37 countries and territories to support
customers who conduct business in the global economy. With approximately
262,000 team members, Wells Fargo serves one in three households in the
United States. Wells Fargo & Company was ranked No. 26 on Fortune’s 2018
rankings of America’s largest corporations. News, insights and
perspectives from Wells Fargo are also available at Wells
Fargo Stories.
Diversification does not guarantee profit or protect against loss in
declining markets.
Target date funds are mutual funds that periodically rebalance or modify
the asset mix (stocks, bonds, and cash alternatives) of the fund’s
portfolio and change the underlying fund investments with an increased
emphasis on income and conservation of capital as they approach the
target date. Different funds will have varying degrees of exposure to
equities as they approach and pass the target date. As such, the fund’s
objectives and investment strategies may change over time. The target
date is the approximate date when investors plan to start withdrawing
their money, such as retirement. The principal value of the funds is not
guaranteed at any time, including at the target date. More complete
information can be found in the prospectus for the fund.
You cannot directly invest in an index.
Wells Fargo Institutional Retirement & Trust is a business unit of Wells
Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company. This
information and any information provided by employees and
representatives of Wells Fargo Bank, N.A. and its affiliates is intended
to constitute investment education under U.S. Department of Labor
guidance and does not constitute “investment advice” under the Employee
Retirement Income Security Act of 1974. Neither Wells Fargo nor any of
its affiliates, including employees, and representatives, may provide
“investment advice” to any participant or beneficiary regarding the
investment of assets in your employer-sponsored retirement plan. Please
contact an investment, financial, tax, or legal advisor regarding your
specific situation. The information shown is not intended to provide any
suggestion that you engage in or refrain from taking a particular course
of action.
This material is for general informational and educational purposes only
and is NOT intended to provide investment advice or a recommendation of
any kind—including a recommendation for any specific investment,
strategy, or plan.
CAR-1018-01104
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Investments in Retirement Plans: NOT FDIC-Insured/NO Bank
Guarantee/MAY Lose Value
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