Defined contribution plan-design features aimed at improving savings of all participants often are having their biggest impact on the youngest workers.
Best-practices features such as automatic enrollment and target-date funds are being embraced by younger employees in greater percentages than other age groups, according to recent surveys by record keepers of their clients and by researchers looking at a broader, cross-section of workers.
“Millennials are surprisingly engaged,” said Catherine Collinson, president of the Transamerica Center for Retirement Studies, a division of the non-profit Transamerica Foundation, Los Angeles. “They are an emerging generation of super-savers.”
Wells Fargo research has found that younger workers have more diversified retirement accounts than those of other age groups, thanks to their investing in target-date funds, target-risk funds and managed accounts.
“They are off to a great start with age-appropriate products,” said Joseph Ready, executive vice president and head of Wells Fargo Institutional Retirement and Trust, Minneapolis. “They know from their parents and their employers that their 401(k) is really important — like health benefits.”
At Vanguard Group Inc., a review of participant behavior shows all age groups are benefiting from auto enrollment, but millennials are benefiting more, said Jean Young, senior research analyst with the Vanguard Center for Retirement Research, Malvern, Pa. “The sooner you get the savings habit, the better off you are.”
Even though millennials' income and job prospects had been affected by the Great Recession, “those working are, in aggregate, saving more due to automatic enrollment,” said an October Vanguard report about research that compared the same 400 client companies in 2003 vs. 2013. Participation rates grew for all age groups, but the rates grew the most dramatically for millennials — those 34 and younger — in plans that offered auto enrollment.
In 2003, Vanguard noted a 51% participation rate for millennials in the aggregate of plans that offered voluntary enrollment or auto enrollment. (The 2003 data combines plans with voluntary enrollment and auto enrollment because auto enrollment barely existed then.)
By 2013, the participation rate for millennials in auto-enrollment plans jumped to 87%, while participation in voluntary enrollment plans rose to 60%. By comparison, for the 35-49 age group — Generation X — the total 2003 participation rate was 71% vs. a 2013 participation rate of 90% in auto-enrollment plans and 73% in voluntary enrollment plans.
The youngest workers usually have the lowest participation rates, so auto enrollment produced the most profound gains, the report said. Also, half of the plans in the survey introduced auto enrollment for only new hires, who are most likely younger workers with shorter tenures.