The 401k plan came into existence in the late 1970s and has now, after more than 30 years, become the primary savings tool for retirement. It’s a great tool, but saving for retirement is hardly simple. And boy, did those of us who design, administer, manage, and sponsor plans for employees get a big reminder of that in the most recent Wells Fargo/Gallup Investor and Retirement Optimism Index study.
When we asked American investors who have not yet retired if they would like to receive more retirement planning advice from their employers, 81 percent said “no!” When we asked, “Who do you most rely on for advice in your 401k plan?” only 22 percent answered the financial firm that runs their plan, and only 11 percent said their company’s benefits department. Thirty-nine percent rely on themselves, friends, and family.
These responses are in line with how employees have viewed their 401k plan for years, and another harsh reminder to our industry that employees rely on others’ advice much more than from the sponsors and administrators who offer and know the most about their plans. (Note: When I refer to advice provided by plan sponsors, I mean the advice tools they make available through their plans.)
As we think about the new year, here are four ways 401k plan administrators and sponsors can show participants we’ve got their backs:
- Embrace baby steps.
Any undertaking outside of what’s familiar can be daunting. Think about a health and fitness plan; is it easier to abruptly switch from a junk-food diet to healthy meals, or, to swap out one bad food choice for a healthier option? Then, once that’s mastered, move on to another? We should be offering the same strategy with our 401k education and guidance. When participants in 401k plans Wells Fargo administers view their 401k balances online, for example, they see how close they are to their retirement savings goal, and get recommended next steps like increasing their contribution rate by 1 percent to save even more – with just a simple click.
- Keep it simple.
When it comes to saving for retirement, we know that the best way to get started is to participate in an employer-sponsored 401k-type plan. But taking that first step can be difficult, so we need to make it as easy as possible. For example, when we offered simple postcards as a method of enrolling in a 401k plan last year, we saw a 17 percent average increase in enrollment.
Where possible, look for ways to simplify the process and keep it simple, which will go a long way toward increasing the number of those saving in, and benefiting from, these plans.
- Make saving and asset allocation automatic.
In our latest study, 75 percent of working Americans told us they favor automatic enrollment in 401k plans, and 66 percent want employers to allow them to automatically increase contributions on a regular basis. Consider automated solutions, such as auto-enroll and auto-contribution-increase to help drive better retirement savings habits.
When automatically enrolled in a plan, participants’ contributions are often put into a target date fund. Target date funds help people by designating a target retirement date and adjusting asset allocations accordingly. As a result, participants’ investments are allocated in a manner that considers their time-horizon to retirement — a critical success factor in retirement saving.
- Give participants someone to talk to.
At Wells Fargo, we believe in the power of conversation, which is why we offer 401k plan participants free retirement consultations. These conversations focus on a series of questions that help participants determine where they stand today, and, the retirement savings goal they want to achieve to make it to and through retirement. Not surprisingly, 46 percent take specific actions after these retirement consultations.
Clearly, we have a long way to go. Retirement planning can be confusing, and even understanding the first steps to take can be hard. But by working with plan sponsors to help make it as easy as possible for participants to get the help they need, we know we can make a difference.
Ready is the director of Institutional Retirement and Trust for Wells Fargo, and he is based in Charlotte, North Carolina. He oversees employer-sponsored retirement plans as well as institutional trust and custody services provided by Wells Fargo, with a mission to help America’s diverse workforce prepare for a better retirement.