Financial Pressures and Enrollment Misperceptions Prevent Employees From Contributing to Workplace Retirement Plans

Rhea-AI Summary

According to the latest Principal Retirement Security Survey, 59% of employees not contributing to their 401(k) or workplace retirement plan mistakenly believe they are. Additionally, 77% of these workers thought they began saving as soon as they were eligible. Misconceptions, combined with inflation and high interest rates, hinder Americans' retirement goals. Among those not saving, top reasons are high expenses (39%), debt (36%), and insufficient income (34%). Principal advocates for automated features like auto enrollment to improve participation; 62% of employees would continue saving if auto-enrolled. Plans with auto enrollment show significantly higher participation rates. A third of employees haven't considered how much to save, though 44% who have think 10-25% is necessary.

Positive

• Automated enrollment features result in significantly higher participation rates.
• 77% of employees believe they start saving upon eligibility, indicating a high awareness of retirement plans.
• 62% of employees would continue saving if automatically enrolled by their employer.
• Plans with automated enrollment are at least twice as likely to achieve 90% participation rates.
• 44% of employees believe saving 10-25% of their income is necessary for retirement.

Negative

• 59% of employees mistakenly believe they are contributing to their retirement plans.
• High monthly expenses (39%), debt (36%), and insufficient income (34%) prevent employees from saving.
• Persistent inflation and elevated interest rates make it harder for Americans to reach retirement goals.
• One-third of employees have not thought about how much they need to save for retirement.

DES MOINES, Iowa--(BUSINESS WIRE)-- Nearly six-in-10 employees (59%) who are not contributing to their 401(k) or other workplace retirement plan think they are, according to the latest Principal^® Retirement Security Survey. Three out of every four of those employees (77%) believed they started saving upon becoming eligible to contribute. This misperception, compounded by persistent inflation and elevated interest rates, makes it harder for Americans to reach their retirement goals, according to Principal^®.

Among survey respondents who said they were not contributing to workplace retirement plans, despite being eligible, the top reasons cited for not saving included high monthly expenses (39%), paying off debt (36%), and insufficient income (34%).

“American workers are balancing a lot right now and it can feel overwhelming to employees who are trying to meet their needs today and invest in their long-term financial security,” said Chris Littlefield, president of Retirement and Income Solutions at Principal. “We are committed to working with employers to help their employees fully understand the retirement benefits available to them, the value of participating in the plan, and how investing in their retirement today can set them up for success in the future. Through good plan design features like automatic enrollment and regular communication, we have seen significantly improved savings and participant engagement.”

The Impact of Automated Features

Employers who leverage plan features that simplify and automate the enrollment process into retirement plans can produce better outcomes for their employees. Automated features include auto enrollment, auto increase of an employee’s contribution rate, and auto-sweep, which re-enrolls existing employees who are not contributing.

In the Principal^® Retirement Security Survey, 62% of employees said they would continue to save in their workplace retirement plan if automatically enrolled by their employer.¹ Additionally, plans using automatic enrollment are at least twice as likely to achieve 90% participation versus plans that do not automatically enroll participants – with less than 10% of workers opting out of retirement plans when automatically enrolled by employers upon being hired.²

Employers utilizing automated features also help eliminate uncertainty around the percentage of pay workers believe is right to contribute, which can lead to inaction. One-third (34%) of employees surveyed have not thought about how much they need to save to maintain their standard of living in retirement. Of those who have thought about it, 44% believe they should be saving 10-25%.

“A good rule of thumb for the average working American is to save at least 15% of their income per year towards retirement, including the employer match,” said Teresa Hassara, senior vice president of workplace savings and retirement solutions at Principal. “We recognize this may not be possible for all people, but it is our industry’s shared responsibility with employers to ensure the access, tools, and plan features are in place to make it easy for people to start saving for retirement – and continue saving through different life moments.”

About the Principal^® Retirement Security Survey

The Principal^® Retirement Security Survey was an online survey conducted by Principal Financial Group. The research was focused specifically on eligible, not participating employees and why they are not contributing to their workplace retirement plan. The first survey was conducted from August 23, 2023, to September 6, 2023. A second survey was conducted similarly between October 20, 2023, and November 2, 2023. Respondents included nearly 2,050 workers.

Principal conducts periodic “pulse” surveys with customers and financial professionals to gain insight into timely topics. The survey findings reported here explore consumer concerns and possible actions surrounding saving and planning for retirement as well as financial behaviors related to market volatility and current events.

About Principal Financial Group^®

Principal Financial Group^® (Nasdaq: PFG) is a global financial company with nearly 20,000 employees³ passionate about improving the wealth and well-being of people and businesses. In business for more than 140 years, we’re helping approximately 62 million customers⁴ plan, protect, invest, and retire, while working to support the communities where we do business, and build a diverse, inclusive workforce. Principal^® is proud to be recognized as one of the 2024 World’s Most Ethical Companies^® by Ethisphere⁵, a member of the Bloomberg Gender Equality Index, and a “Best Place to Work in Money Management⁶.” Learn more about Principal and our commitment to building a better future at principal.com.

Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Company^®. Plan administrative services offered by Principal Life. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., member SIPC and/or independent broker/-dealers. Principal Global Investors leads global asset management. Referenced companies are members of the Principal Financial Group^®, Des Moines, Iowa 50392.

© 2024 Principal Financial Services, Inc. Principal^®, Principal Financial Group^®, and Principal and the logomark design are registered trademarks of Principal Financial Services, Inc., a Principal Financial Group company, in the United States and are trademarks and services marks of Principal Financial Services, Inc., in various countries around the world.

¹ According to employees who identified they were not saving from retirement; N=681.
² Principal^® proprietary data as of December 31, 2023; plan-level participation rates.
³ As of March 31, 2024
⁴ As of March 31, 2024
⁵ Ethisphere, 2024
⁶ Pensions & Investments, 2023

View source version on businesswire.com: https://www.businesswire.com/news/home/20240606237693/en/

Phillip Nicolino, 515-362-0239, nicolino.phillip@principal.com

Source: Principal Financial Group

FAQ

What percentage of employees are confused about their retirement plan contributions?

59% of employees not contributing to their 401(k) or other workplace retirement plan think they are.

Why are employees not contributing to workplace retirement plans?

Top reasons include high monthly expenses (39%), paying off debt (36%), and insufficient income (34%).

How does auto enrollment affect retirement plan participation?

Plans with automatic enrollment are at least twice as likely to achieve 90% participation rates.

What percentage of employees would continue saving if auto-enrolled?

62% of employees said they would continue saving in their workplace retirement plan if automatically enrolled.

What saving rate do employees believe is necessary for retirement?

44% of employees who have thought about it believe they should be saving 10-25% of their income.