U.S. Businesses Play Pivotal Role in Preparing Workers for Retirement, According to Wells Fargo

A new report from Wells Fargo Institutional Retirement and Trust details the specific features of a well-designed 401(k) plan that are most effective in helping employees amass the savings they need to replace 80 percent of their income in retirement.

For the report, 2018 Driving Plan Health, Wells Fargo Institutional Retirement and Trust analyzed more than 2,000 401(k) plans representing more than 4 million eligible employees in a range of industries. (Refer to the report for complete methodology information.) The company found 16 features that are most effective — and “high influence plans” use a combination of the 16 to launch employees on the path to replace 80 percent of their pre-retirement income once they retire.

“When U.S. workers are saving in 401(k) plans that have the right combination of features, we believe they have a significantly better chance of amassing the savings they need to retire comfortably,” said Mel Hooker of Wells Fargo Institutional Retirement and Trust. “While saving and investing for retirement fall primarily on individuals, we also found that the way businesses design their 401(k) plans for employees can dramatically influence the decisions people make in preparing for retirement.”

“Influence Factor”

Wells Fargo Institutional Retirement and Trust created “Influence Factor” ratings for all of the 401(k) plans it administers to measure the degree to which plan design incorporates key features that influence things like plan participation, overall saving, and investment diversification. Of the 16 features that exert influence, four seek to generate the most positive outcomes:

• Automatic enrollment, with a default of 6 percent or more going to the 401(k) and automatic annual re-enrollment.
• An opt-out option to increase the default to a rate of 10 percent or higher.
• Diversified investment offerings, such as a target-date fund.
• An above-average company match of at least 5 percent, or profit sharing.

“When used together, these features address the psychological barriers, or inertia, that tend to get in the way of a person’s path to a well-funded retirement,” said Hooker. “Our research shows that effective plan design helps render better outcomes for employees. When plans are built with the right features, employees have a much better shot at building the savings they need for retirement,” said Hooker.