As hopeful evidence that a half-decade of retirement savings doldrums may finally be over, a new examination of employee 401(k) participation suggests workers are back on the savings path – and increasingly using health savings accounts as a new form of long-term financial planning.
That's a three-year high, and an indication that gentle nudging from plan sponsors, including onsite educational programs, can be beneficial in getting employees back in a savings mode, explains
What's more, with many employers seeding HSA accounts to spur employee interest and involvement, Crain says he's seeing dramatic growth in the use of the accounts (56% last year alone, among BofA HSA participants).
"We've also seen employers connecting their 401(k) and HSA benefits and making them similar, blending them together as a total concept for employees to save more money for their retirement," he says. "That's an interesting continued trend."
Crain, a 30-year retirement industry veteran and the executive lead on legislative and policy issues related to retirement, admits that the 401(k) system is not the perfect be-all, end-all to address America's looming retirement woes, but as the system we presently have to work with, there are many ways to up participation and improve savers' outcomes.
"401(k)s are, to start with, a bit overly democratic – you give too much decision-making power to individuals, and you're relying on 70 million individuals to be competent enough to handle their own investments," he notes. "As a result, they're being very safe about it, but you have to take some risk to generate better returns. The whole private system is not at all perfect, but it is evolving to be better for participants. It just has to be an active partnership between employers and employees."
Getting people interested, he admits, is the biggest challenge – even with a majority of employers slowly reinstating their 401(k) match programs. Those annual 401(k) statements, full of fee disclosures or not, do very little to break people's inertia, and rather than doing anything, "they just didn't decide, at all – so we need to help them keep deciding," Crain notes.
Crain says that accelerating the use of target-date funds and managed accounts programs is part of the answer, but a bigger thrust is turning that into an impetus to save. Auto-enrollment programs use that inertia for a better purpose, as do more aggressive auto-escalation features. The new scorecard shows that there was a 16% increase in plan sponsors using auto-enrollment features and a 25% jump in those adding auto escalation.
Every little bit helps, Crain notes. "These [rates] have almost been a little too low up until now, with people deferred at just 3% of their income. We have many clients becoming far more aggressive, raising that number to 4, 5 or 6% as an initial deferral rate. And we know that the upper psychological threshold is about 10%; the good news is that we don't see people flooding out of the programs when the higher escalations happen."
In reality, less than 10% of employees in auto-enrollment systems tend to opt out, and more than 40% of those who are in the game instead decide to take further action to increase their savings, he adds.
Taking a different tack, getting tech-obsessed employees to use mobile-friendly systems such as BofA's Benefits Online – which also provides access to their entire pooled suite of company-sponsored savings vehicles – can be a good way of keeping them more involved and better engaged in the admittedly abstract world of long-term savings and investment. Among 401(k) participants using the company's Advice Access service, some 90% also are taking part in its managed accounts program, which provides more active steerage and mild financial guidance.
And in a climate full of class-action-suit lawyers, Crain notes, plan sponsors may also have to be more careful about the legal ramifications of simply offering a 401(k) plan to employees but taking no action to actively engaging those participants. A time may come, he says, "where you cannot just say, 'It's not my problem, we offered it, you didn't use it.' There may be a very specific responsibility to get that benefit utilized."
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