With nearly half of American workers sitting on less than $10,000 in retirement savings and 70 percent of workers saying they are behind in planning and saving 1, individuals simply aren’t financially ready for retirement.
A new approach to workplace retirement plans, Principal® PlanWorks from the Principal Financial Group ®, uses key design features to help put participants on a path towards a more successful retirement. Success is determined by participants’ retirement readiness, a new way of thinking about retirement planning that focuses on retirement income versus retirement savings. The right retirement plan design can encourage individuals to save at higher levels to achieve a higher level of retirement income or readiness.
“Americans aren’t saving enough for retirement – plain and simple. Often it’s due to inertia. That’s why we’ve designed retirement plans that harness the power of human nature instead of working against it,” said Jerry Patterson, senior vice president of retirement income strategy at The Principal ®. “By implementing several automatic plan design changes, employers can elevate their retirement plan and make a significant impact on their employees’ participation and savings rates.”
To elevate the success of any retirement plan, The Principal suggests employers strive to get their workforce participation up to 90 percent with a 10 percent average deferral rate – plus employer match. In order to reach these numbers, Principal PlanWorks includes several key automatic plan design features:
- Automatic enrollment with at least 6 percent elective deferral.
- Automatic escalation of at least 1 percent per year up to 10 percent.
- Sweep all existing employees into the plan at least one time at the default deferral rate.
- Stretch the match by using a formula that incents employees to defer at higher levels in order to get the full employer match.
- Use asset allocation choice as the qualified default investment alternative (QDIA).