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Financial Incentives for Retirement Readiness: The Rising Sophistication of DC Admin Tools

Financial planning for retirement readiness is a big concern for many individuals, and the stress is often magnified the closer one gets to retirement.

For years, organizations and DC administration providers have been honing different approaches to address this. One of the biggest challenges in establishing a model that works stems from diversity within the workforce. Earlier approaches attempted to resolve this by formulating guidance around different life stages, which was a good start.

Along the way several tools such as peer comparisons have been added, and automatic enrollment and escalation features have definitely helped grow 401(k) accounts in the right direction. But these steps alone will not guarantee success, especially if employees take out a 401(k) loan, which impedes its growth and subjects the individual to potential fees and penalties. 

The majority of large market employers in the U.S. have already outsourced their DC plans. Therefore, most contract activity in this area consists of either a renewal with the existing service vendor or a change to a new vendor. In 2013, these contracts accounted for ~80% of DC activity, and in 2014, renewals and vendor changes within the large market accounted for 90% of the activity.

During both years vendor changes alone accounted for ~45% of activity, and the indications are that plan sponsors are looking to their new vendor to deliver more innovative and sophisticated DC approaches that will yield better DC metrics. So, what do these new approaches look like? Xerox’s SavIncent offering is a good example. 

SavIncent is an incentive-based financial wellness program that is linked to the company’s retirement savings plan. It uses monetary incentives to reward employees for participating in wellness activities including:

  • Completing a financial health or risk profile
  • Enrolling in a 401(k) plan or signing up for auto escalation
  • Meeting with a financial advisor
  • Establishing a will
  • Taking financial training seminars
  • Monitoring their credit score.

These activities are tracked through an online participant and administration system, which also calculates the incentives so that employer contributions can be reported to the record-keeper, and so that a direct deposit can be made into the employees’ 401(k) account.

Financial savviness is hardly everyone’s forte, and education and guidance alone are not necessarily enough to motivate plan participants in the right direction. Financial incentives are powerful, and can be the new key ingredient to improving retirement readiness.

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