Empower Institute: A Generation of Young Workers First to Benefit from Retirement Plan Modernization

Millennials are the first generation to fully benefit from improvements
made to retirement plans over the last decade and it shows now in their
retirement savings habits and attitudes, a new survey from Empower
Institute reveals.

Millennials – those who were born after 1981 – are on track to replace
75 percent of their income in retirement compared to Generation X
workers who are on track to replace 61 percent and baby boomers who are
on track to replace 58 percent, according to an Empower
Institute survey of 4,000 working Americans ages 18 to 65 who are
saving for retirement in any workplace plan, such as a 401(k), 457(b) or
403(b) plan.

The landmark Pension Protection Act of 2006 – enacted at the time when
millennials began entering the workforce – allowed automatic enrollment
of plan participants, automatic escalation of participants’
contributions and acknowledged the significance of employer
contributions to employee accounts, among other reforms. In the ensuing
12 years, the reforms allowed by the legislation have made it possible
for defined contribution plans to offer a new mix of innovative

Today, 41 percent of millennials responding to the Empower Institute
survey are automatically enrolled in a DC plan, compared to 38 percent
of Gen Xers and 33 percent of baby boomers. Additionally, 38 percent of
millennials are enrolled in a plan with auto escalation features.

“New features such as auto enrollment and auto escalation have come a
long way in making access to retirement savings programs easier for
employees and in shaking off some of the concerns of the past with
earlier DC plan designs,” said Edmund F. Murphy III, President of
Empower Retirement. “Millennials are the first generation in the
workforce to fully benefit from changes in the law made in 2006.”

The survey results include a Retirement Progress Score (RPS), which
is a numeric estimation of the percentage of working income that
American households are on track to replace in retirement. The survey
results show the median projected income replacement among all the
survey participants is 64 percent – meaning Americans, on average, are
on-track to replace 64 percent of their current income in retirement.

Murphy noted that there is an 11-point difference in median income
replacement percentages among participants across all generations who
are enrolled automatically into DC plans versus those who opted into a

Changing attitudes about retirement planning

The survey reveals that attitudes about retirement planning differ among
the generations. For example, millennials have the least investable
assets now compared to Gen Xers and baby boomers who have been in the
workforce longer; however, they are seeking advice and have formal
retirement plans in higher rates than older generations.

Some key findings:

“Millennials who have had access to defined contribution plans are
taking charge of their retirement planning by setting up a formal plan
and seeking professional advice,” Murphy said. “Those are two strategies
that are likely to lead to better retirement outcomes.”

The Empower Institute survey findings are available in a white paper
called “Scoring
the Progress of Retirement Savers.”

The research was organized by Empower Institute, in collaboration with
Brightwork Partners, LLC.*

*Brightwork Partners, LLC is not affiliated with Empower Retirement.

About Empower Institute

Utilizing resources from within Empower Retirement and the
academic and policymaking communities, Empower Institute critically
examines investment theories, retirement strategies and assumptions, and
suggests changes that can achieve better outcomes for companies,
institutions, retirement plan sponsors, investment advisors and
individual investors. Research from Empower Institute is available at www.empower-institute.org.

About the survey

The survey results are from a national survey of 4,038 working adults
(full-time, part-time, never retired) ages 18 to 65, conducted in
conjunction with NMG Consulting. Respondents answered an online survey
between December 18, 2017 and January 21, 2018.

About Empower Retirement

Headquartered in metro Denver, Empower Retirement administers $534
billion in assets for more than 8.5 million participants. It is the
nation’s second-largest retirement plan record keeper by total
participants (Pensions & Investments, April 2018).
Empower serves all segments of the employer-sponsored retirement plan
market: government 457 plans, small, midsize, and large corporate 401(k)
clients, non-profit 403(b) entities, private-label recordkeeping clients
and Individual Retirement Account customers. For more information,
please visit www.empower-retirement.com.

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