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August 06, 2013 at 09:55 AM
New York Life Retirement Plan Services set out to debunk the many myths surrounding the retirement industry. As it put it, many of the “known truths” about retirement in this country are myths.
In its report, “State of the retirement industry,” the company looks at current trends in retirement that are affecting Americans’ ability to retire and the short and long-term implications of those trends.
Its findings:
Myth 1: A good portion of the American workforce will not save for retirement. New York Life says that is false because the industry knows how to get people to save so “we shouldn’t accept the notion that we can’t reach everyone.” It found that nearly 93 percent of individuals who are auto-enrolled into a plan remain enrolled, compared to 37.5 percent of people that choose to enroll within the first 12 months of eligibility.
Myth 2: Retirement plans can’t burden the average worker with too high of a savings rate. They can’t afford it and will drop out of the plan. New York Life found that participants are more likely to stay in the plan the higher the default contribution rate.
Myth 3: Auto-enrollment results in small orphaned accounts that drive up the costs of running the plan. According to New York Life, auto-cash out or rollover features have largely solved this issue. Also, plans with auto-enrollment grow their asset base 11 percent faster annually than a plan without auto-enrollment, allowing for a more advantageous fee and cost environment.
Myth 5: Auto-increase is good but could cause participants to save too much. New York Life says that is not a problem. Participants are not saving enough and most people need to be saving 15 percent of their annual salary to adequately save for retirement. Auto-escalation features should help participants reach that 15 percent level over time.