10 Retirement Quick Facts for October

Here are some great stats, figures and trends to help with the oversight of your company sponsored retirement plan and may aid in conversations or communications with plan participants.  

1. TDF vs. DIY. Based on 2018 data, 56% of 401(k) plan participants were invested in target date (or lifecycle) funds (TDFs). Participants invested in TDFs had slightly higher allocations to equities (66%) compared with participants not invested in TDFs (60%), especially among the younger participants. (Source: Employee Benefit Research Institute)
2. GET RID OF THE JARGON. A recent report concluded that participants are more likely to act if they receive direct language rather than industry jargon; 44% of respondents reported that commonly used financial terms make them hesitant to talk about money. Want to learn more about the phrases that your employees prefer to hear? Be sure to read to the end. (Source: Empower, "Boosting the Effectiveness of Retirement Plan Communications")
3. SOCIAL SECURITY REFRESH. Social security statements received a new look this month. Personalized social security statements, accessible through my Social Security at ssa.gov, is one of the most effective tools people can use to learn about their earnings and future Social Security benefits. (Source: ssa.gov/news)
4. AUTO ENROLL EVERYONE. The House Ways & Means Committee voted to include a provision in the budget reconciliation bill that would require businesses more than 2 years old and employing 5 or more people to automatically enroll their employees in an IRA or 401(k)-type plan if they don't offer another type of retirement plan. The default auto enrollment rate would start at 6% and gradually escalate to 10%. (Source: House Ways & Means Committee)
5. THE STRUGGLE IS REAL. Many 401(k) plan participants do not understand the fee information provided by plans to satisfy DOL requirements: 45% cannot determine the cost of their investment fees, 41% incorrectly believe they do not pay any plan fees, and 72% do not understand that investing in the same funds outside the plan could be more expensive. (Source: Government Accountability Office)
6. THE GREAT RESIGNATION. To create a competitive advantage in recruiting talent, 69% of employers plan to enhance and customize their benefit programs over the next two years, a significant increase from 23% today. (Source: Wills Towers Watson)
7. SERIOUS DISCONNECT. Despite not having enough to meet their retirement income goals, 1/3 of workers plan to retire before age 65 and 1/2 at 65, even though their Social Security benefits will be reduced. Yet, if they run out of savings in retirement, the contingency plan for 62% of workers is to downsize and live on their Social Security benefits. (Source: Insured Retirement Institute)
8. ROOM TO GROW. Retirement plan participants' average salary deferral amount in 2018 was $5,510. Overall, only 8.5% of participants contribute the maximum annual contribution to Defined Contribution (DC) plans. This percentage increases to 14.5% for those ages 55-64. Incidentally, the maximums for 2021 are $19,500 and $26,000 for those 50 or older. Watch for the Cost of Living Adjustments (COLA) for 2022 to be announced soon. (Source: Congressional Research Service)
9. BOND REVIEW DUE? DC plans require each person who handles plan assets to have a fidelity bond for at least 10% of the amount of funds they handle during a plan year. As plan assets rise, so too should bond amounts. The bond amount must be at least $1,000 and does not have to be more than $500,000. (Source: ERISA)
10. TRICK OR TREAT. With Halloween approaching, the most popular Halloween candy by state is being shared. For Montana the favorites rank: #1-Double Bubble Gum, #2-Twix, #3-M&Ms. For Wyoming, the favorites are: #1-Reeses, #2-Salt Water Taffy, #3-Double Bubble Gum. Hope you get to snack on some of your favorites come October 31st! (Source: Candystore.com)

QUESTION. Does fear-based retirement messaging like, "We project you're going to have a 29% shortfall..." improve the likelihood of action as compared to an encouraging message like "You are on track to reach 71% of your goal?"

For the answer join us for our popular webinar, Retirement Plan Trends and Developments, scheduled for Thursday, November 18th at 10 AM. We'll share this answer as well as many more timely insights for CEO, CFO and HR professionals who work with a company-sponsored retirement plan and plan participants. If you'd like to be included in the invitation, please e-mail us at [email protected].

The views expressed in this post represents the opinion of Allied Investment Advisors, a Registered Investment Adviser. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment or services. Nothing contained herein constitutes financial, legal, tax, or other advice. The information provided herein is obtained from sources believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Investment recommendations may change and readers are encouraged to check with their investment advisors before making any investment decisions. Past performance is not indicative of future results. Investments are not a deposit of or guaranteed by a bank or any bank affiliate. Please notify Allied Investment Advisors if there have been any changes to your financial situation or investment objectives or if you wish to impose or modify any reasonable restrictions on the management of your accounts through Allied Investment Advisors.