Perspectives - from millennials to baby boomers - J.P. Morgan Asset Management
CLOSE

Perspectives - from millennials to baby boomers

Contributors Catherine Peterson, Anne Lester
2018 DC PLAN PARTICIPANT SURVEY FINDINGS

Our latest survey reveals that, although participants are making progress and gaining confidence overall, more work is needed. In a series of three articles, we discuss our findings and the steps plan sponsors can take to further strengthen their plans.

AGE MATTERS, BUT SOME THINGS ARE INTERGENERATIONAL

The previously released articles in our series 2018 Defined Contribution (DC) Plan Participant Survey Findings explored the knowledge, behavior and attitudes of participants as a whole with respect to planning, saving and investing for retirement, as well as the steps plan sponsors can take to understand, motivate and streamline investment decision-making and further strengthen their plans.

NOT ALL PLANS AND PARTICIPANTS ARE THE SAME

Understanding the state of plan participants is critical. It’s important for plan sponsors and their advisors to bear in mind the distinct composition of their workforces and what motivates and appeals to different employee cohorts. In this article, we focus on differences in saving and investing by age, comparing selected survey results among those:

Some differences are predictable. The youngest participants want more guidance in saving and investing for retirement. The oldest are somewhat more confident in their saving and investing know-how. The most pronounced differences appear to be in how participants view the role of employers in helping them achieve a financially secure retirement. In fact, 57% of those under 30 (vs. only 18% of those 55 and older) believe their employer has an obligation to help them choose the right investments from the plan’s lineup.

When it comes to automatic plan features, as well as target date funds (TDFs) and re-enrollment, there are differences in the degrees to which these age groups are supportive. Yet while those age 55 and over are less likely to have experience with these strategies, the majority (nearly 70%) are in favor of or neutral toward them. What’s more, the level of satisfaction among those who have experienced these strategies firsthand is high across all age groups.

CONSISTENT KNOWLEDGE GAP ACROSS AGE GROUPS

One might expect those who have been saving and investing the longest—and who generally have the shortest time until they retire—to express the most confidence in their ability to quantify their savings needs. Indeed, it is true that those 55 and older are somewhat more confident, but the difference is not substantial. And in terms of confidence in selecting plan investment options and adjusting allocations over time, the differences are negligible. In fact, those under 30 are the most confident in their ability to choose their investments (EXHIBIT 1). Perhaps not surprisingly, the percentage of participants who trust a technology application to provide financial advice decreases significantly with age: 60% of those under 30 trust this source; only 30% of those 55 and over do.

Across age groups, too few participants are highly confident in their ability to quantify savings goals and make investment decisions

EXHIBIT 1: HOW CONFIDENT ARE YOU IN YOUR KNOWLEDGE OF EACH OF THE FOLLOWING ASPECTS OF 401(K) RETIREMENT PLANNING/INVESTING? (% RESPONDING “VERY” OR “EXTREMELY” CONFIDENT)

Note: 2018 Total n=1,295; “under 30” n=117; “30-54” n=669; “55+” n=509.
Source: J.P. Morgan Plan Participant Research 2018.

A SOMEWHAT DIFFERENT BALANCE: PARTICIPANT AUTONOMY VS. EMPLOYER DIRECTION

Where we do see a more pronounced difference across age groups is in their views of the role of employers in helping participants save and invest for retirement. Across all age groups, a majority somewhat or strongly agree that employers should encourage contributions to the company retirement plan. But the percentages in agreement drop and the results by age group diverge when participants are asked whether employers should make saving and investment decisions on their behalf (EXHIBIT 2). Clearly, older employees seem to feel most strongly that such decisions are theirs, not their employers’, to make—even though many still lack confidence in their saving and investing prowess.

The older the participants, the less they welcome employers’ involvement in their saving and investing efforts

EXHIBIT 2: TO WHAT EXTENT DO YOU AGREE/DISAGREE WITH THE FOLLOWING STATEMENTS? (% RESPONDING “SOMEWHAT AGREE” OR “STRONGLY AGREE”)

Note: 2018 Total n=1,295; “under 30” n=117; “30-54” n=669; “55+” n=509.
Source: J.P. Morgan Plan Participant Research 2018.

Automatic features and strategies receive a solid level of support across age groups

A growing number of plan sponsors are taking steps to improve participants’ retirement outcomes: adopting automatic enrollment and automatic contribution escalation features and, to a somewhat lesser degree, conducting re-enrollments, using strategies such as TDFs as the qualified default investment alternative (QDIA). While some plan sponsors fear participant pushback on implementation, survey results indicate solid support across age groups; even among those 55 years and older, a strong majority (nearly 70% or more) are in favor of or at least neutral toward these features and strategies (EXHIBIT 3).

The somewhat lower level of support among those close to retirement is not surprising. Fewer have experienced these features (only 18% went through automatic enrollment, for example, vs. 52% of those under 30), and there is a shorter period of time for them to reap the potential benefits. But it is worth noting that among those 55 and older:

  • 97% of those automatically enrolled were satisfied (somewhat or very)
  • 13% said they probably or definitely would not have enrolled otherwise
  • 99% of those whose contribution rate was automatically escalated were satisfied
  • 23% said they probably or definitely would not have increased their contribution otherwise
  • 95% of those who were re-enrolled and allowed their assets to be moved to a TDF were satisfied

And, of course, a key element of these features is that the choice of opting out or changing contribution rates remains in the hands of the participant—regardless of age.

Even among those 55 years and older, there is substantial support for automatic plan features and strategies

EXHIBIT 3: PERCENTAGE OF PARTICIPANTS IN FAVOR OF OR AT LEAST NEUTRAL TOWARD THE PLAN FEATURE/STRATEGY

*Annual increase of 2% of salary up to 10%.
**Contributions start at 6% with annual increase of 2% of salary up to 10%.
***Appeal of TDFs shows % of those who find TDFs “somewhat” or “very” appealing.
Note: 2018 Total n=1,295; “under 30” n=117; “30-54” n=669; “55+” n=509.
Source: J.P. Morgan Plan Participant Research 2018.

IMPLICATIONS FOR PLAN SPONSORS

Participants do vary in their saving and investing behavior and perspectives. Therein lies the challenge for plan sponsors as they consider plan design options. It’s true—younger participants appear somewhat more receptive to automatic plan features and strategies, and have more time to realize their potential benefits. But even older participants (who can, of course, opt out) are generally supportive of these approaches, satisfied with their experience of them and responsive to their motivational nudge to save more. Working with a proactive advisor can help plan sponsors stay in tune with the latest saving and investing strategies and sort through the considerations of greatest importance for the retirement security of all their plan participants.

ABOUT THE SURVEY METHODOLOGY

To stay in tune with the knowledge, behavior and attitudes of 401(k) plan participants with respect to saving and investing for retirement, we undertook our fifth participant research study on this topic. From January 5 through January 15, 2018, we partnered with Mathew Greenwald & Associates, a market research firm based in Washington, D.C., to conduct an online survey of 1,295 defined contribution plan participants. In order to qualify for the study, each respondent had to be employed full-time at a for-profit organization with at least 50 employees, be at least 18 years old and have contributed to a 401(k) plan in the past 12 months.

Survey results have been weighted by age, gender and education to reflect the overall makeup of the general population of 401(k) plan participants. In a similarly sized, random sample survey of general population respondents, the margin of error (at the 95% confidence level) for the total population in this study would be plus or minus approximately 2.8 percentage points.



DISCLOSURES:

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, you should seek individualized advice from your personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of your own situation.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve.

TARGET DATE FUNDS. Target date funds are funds with the target date being the approximate date when investors plan to start withdrawing their money. Generally, the asset allocation of each fund will change on an annual basis with the asset allocation becoming more conservative as the fund nears the target retirement date. The principal value of the fund(s) is not guaranteed at any time, including at the target date.

J.P. Morgan Asset Management is the marketing name for the investment management businesses of JPMorgan Chase & Co. and its affiliates worldwide. J.P. Morgan Funds are distributed by JPMorgan Distribution Services, Inc.; member of FINRA.

© 2019 JPMorgan Chase & Co. All rights reserved.