Encouraging Millennials to Participate in Retirement Plans

In 2016, millennials became the largest generation in the U.S. labor force with an estimated 56 million workers. Born between 1981 and 1996, millennials now account for more than one out of every three working Americans. Despite its size, this generation is often overlooked by plan sponsors due to their focus on the needs of those participants nearing retirement. Without retirement plans tailored to meet their own barriers, millennial workers struggle to save adequately for retirement. While an obvious roadblock may be lingering student debt, millennial would-be savers face several additional unique obstacles. This multifaceted struggle presents plan sponsors with both a challenge and an opportunity. To attract and retain the largest age group of U.S. workers, employers need to consider the unique needs of this generation in a retirement plan context. Read on to learn how to encourage millennials to participate in your retirement plan.

Active vs Passive Investing: A Hotly Contested Debate

There is no single, preset approach to designing an investment menu for defined contribution retirement plans. Accordingly, there are a plethora of highly contested ideas and theories around menu construction and how to maximize the value to participants through the plan’s investment offerings. One of the most prominent, and often most polarizing, menu design considerations is the superiority of active or passive management for plan investments. With a fundamental understanding of how active vs passive investing approaches work, as well as the pros and cons of each, plan sponsors can make more informed decisions in their menu construction.

The American Student Loan Crisis – Plan Sponsor Solutions

At the end of each spring semester, millions of college graduates in the United States celebrate their college diploma in return for their hard work. With the hopes that their degree will bring a successful career, these graduates enter the workforce, often bringing with them tens of thousands of dollars in student loan debt. With 44.7 million Americans currently carrying an estimated $1.5 trillion in student debt, this financial burden will remain with many for decades. And as these graduates become part of the employee population of many companies, employers are now exploring their role on how they can assist with tackling this debt.

Considerations for Selecting an Index Fund Manager

Index funds are passive investments that are designed to mimic the makeup and performance of an underlying market index, such as the S&P 500, at a reduced fee level. According to the Investment Company Institute (ICI), a Washington, D.C.-based mutual fund industry research group, 36% of households in 2018 who owned mutual funds owned at least one equity (stock) index fund. A total of 497 index funds in 2018 had in aggregate assets more than $3.3 trillion. $156 billion in new assets flowed into index funds in 2018 (according to the ICI factbook), distributed as follows:

  • 40% invested in world stock indexes (i.e. FTSE 100–London, Nikkei 225–Tokyo, etc.)
  • 37% invested in domestic stock funds (i.e. NYSE Composite, Russell 2000, etc.)
  • 23% invested in bond or funds made of hybrid indexes (i.e. world and domestic stock funds)

As index funds remain popular among all mutual fund investors, and have grown in usage within retirement plans, it is important to understand the motivation for investors to make these investments. It is equally important to understand what decision-making framework must exist to select an index fund manager to manage investor’s expectations, balancing returns and risks.

Key Components of an Effective Retirement Plan Committee

An organized, well-managed retirement plan committee is a key foundation of a successful retirement plan. Forming an effective retirement plan committee not only fosters more diverse ideas and opinions, but it also challenges the status quo to create and maintain a more thoughtful plan. For this reason, an important first step in fulfilling plan governance requirements is to establish and operate an effective retirement plan committee.