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Defined Contribution

Millennials on track for better retirement outcome – Empower Institute

Millennials are most likely to benefit from improvements in DC plans, Empower says.

The youngest workers have a better chance of meeting retirement goals than older peers, according to research published Wednesday by the Empower Institute, the affiliated research arm of Empower Retirement.

The Empower Institute found that millennials — those born from 1981 to 2000 — were on pace to replace 75% of their income in retirement, based on estimates of retirement plan savings and other financial factors, in a survey of 4,038 working adults age 18 to 65 who are enrolled in a workplace retirement plan.

The projected replacement rate for Generation X — born 1965 to 1980 — was 61%. For late baby boomers, the replacement rate was 61% while for early baby boomers, the rate was 55%. (Baby boomers' birth years span 1946 to 1964). The median for all respondents was 64%.

The reasons for the millennials' leading projected performance are based on their being covered by defined contribution plans with more features to encourage more savings, Steve Jenks, chief marketing officer for Empower Retirement, said in an interview.

Among the various age groups, millennials are most likely to benefit from improvements in DC plans following the Pension Protection Act of 2006, he said. That means a greater emphasis by plans on auto enrollment, auto escalation and qualified default investment alternatives, he said.

"They are using the most modern form of defined contribution plans," he said. By contrast, the oldest workers — the early boomers — might have had access to modern DC plans for only a portion of their careers, he added.

Over the years, DC plans have improved communication and education, provided more personalized services, and expanded use of technology and social media — all contributing to predicted better results for millennials, Mr. Jenks said.

The Empower Institute survey described participants' post-retirement income replacement opportunities as a "retirement progress score." In addition to DC plan savings, the estimate included individuals' current savings, investments in retirement plans, taxable accounts, individual retirement accounts, variable annuities, cash value of life insurance, income from defined benefit plans, future Social Security benefits and projected future wage growth, a survey report said.

The survey was based on online responses from mid-December to mid-January. The research was conducted in conjunction with Brightwork Partners and NMG Consulting.