Driving plan participation and engagement in the government market
In the government market today, there are only 9 states that allow plan sponsors of state and local governmental supplemental savings plans to implement automatic plan features without any restrictions. So how can governmental plan sponsors and retirement plan service providers achieve optimal plan results without the ability to implement the best plan design features available? That is the challenge that we, in the government market segment, face when automatic enrollment and automatic contribution escalation are not available as plan features due to state law constraints.
Amy Heyel, SVP, National Practice Leader for government markets
Traditional efforts from the retirement service provider industry and plan sponsors will continue to see moderate success from marketing, communication and education, but unless we push forward with more holistic solutions, we will be challenged to move the dial significantly on metrics such as enrollment, savings rate, diversification and overall plan health.
Voluntary enrollment is not significantly improving participation rates
Average take-up rate in defined contribution plans
The good news is that Voya has seen significant increases in our clients’ plan metrics where we are able to create relationships with our plan sponsors through data sharing arrangements to allow for more plan automation and accurate reporting. In other words, where plan sponsors provide us with indicative data regarding their employee population, they have been able to achieve results traditionally associated with plans with automatic features.
Encouraging eligible but non-contributing employees to start saving
Improving plan participation is one of the biggest challenges for plan sponsors when they are unable to implement automatic plan features. Voya clients have been able to achieve participation rates at and above 70% of the population when Voya is able to identify the population of employees that are eligible but not contributing to the plan. This is accomplished by receiving a file of eligible employees or new hires on a routine basis and creating a thoughtful outreach campaign to make them aware of the plan features and benefits of participating. Historically, the hesitancy to provide the information has been around soliciting employees, but this concern can be addressed by creating contractual terms that clearly state the rules of engagement – all with the specific purpose of educating participants and helping employees save for retirement.
The success of the outreach campaign is also dependent on the methods used to engage employees. With the increasing number of millennials in the workforce today, the ability to engage digitally and electronically becomes more important. It is extremely beneficial to receive email information for eligible employees and plan participants from the plan sponsor. The employee can provide the email address on their own, but wouldn’t it be more effective to automate this process by receiving an entire file of workplace email addresses and allow for everyone to receive all methods of approved communication? Effective email campaigns can yield statistically more significant results than other traditional methods of communication (group meetings, direct mail).
Measuring positive participant outcomes
A challenge with achieving results is often the ability or inability to measure success toward the goal.
- A simple but effective example of this would be the industry focus on monthly income in retirement as a measurement of retirement success. Voya, along with behavioral finance experts, believes that this concept is easily understood by savers and helps them relate more to their overall future retirement needs. Furthermore, plan sponsors and consultants are becoming increasingly focused on plan health, as measured by a participant’s ability to replace a certain percentage (typically between 70-80%) of their working income. However, the service provider industry does not always receive information on a participant’s salary on the data file provided by the employer. How can they then provide an income replacement calculation without the income that the participant is trying to replace?
- Another challenge easily solved by receiving this data element is quantifying the savings rate of the plan population. It is difficult to calculate the amount of savings by participant when it isn’t in the context of how much money the participant is earning. Of course, the participant could enter the salary amount individually in their profile, but wouldn’t it be great if it was automated for them? In other words, where we can automate in the government segment, let’s do it!
Another opportunity for the governmental plan sponsor to move the dial on plan metrics is to allow for employees to take action on the participant website. Having to complete forms and submit them to the employer allows for procrastination and inertia, the known enemies of meeting retirement savings goals. Allowing for online enrollment and online contribution changes can be significant in improving employee engagement results. At Voya, we can easily allow for employees to enroll online and are extremely adept at working with plan sponsors and their payroll team to allow for us to be the recordkeeper of employee contribution changes and provide those changes through a file feedback process that does not disrupt the payroll team’s process or timeline.
As seen in the chart below, savings rates increase with digital engagement and/or online calculators, with users saving 31% more than non-users.
Our goal is for each of our client’s plan participants to replace at least 70% of their working income for the entire duration of their retirement. Voya applies product and technology innovation to help ensure participants are ready to retire by looking through the lens of how they will generate income in retirement. Our myOrangeMoney® online educational experience makes it easier for all employees, including those with special needs, to understand how their savings today will make a difference tomorrow. This experience helps employees estimate how much they’ll need and when they’ll be ready to retire, and can be especially important when estimating gaps from government pensions. Since its 2014 launch, over 5 million participants have viewed myOrangeMoney, and users are contributing 31% more than non-users (7.2% vs. 9.4%). In the past 12 months alone, myOrangeMoney® users who took action are on track to save $173M more for retirement each year.1
You can benefit from the results that we have achieved by receiving better data and applying electronic and digital engagement.
Reach out to your local Voya representative** to learn how we can help improve your plan participation and overall plan health. Visit VoyaGovernmentMarket.com to learn more.
Voya is the #1 provider of governmental deferred compensation plans2, offering retirement plan solutions to state, city, county and municipal government entities in 49 states for over 2.5 million participants.
Amy Heyel*** is senior vice president, national practice leader, government markets, for Voya Financial. Amy is focused on building relationships with plan sponsors, intermediaries and consultants, focusing solely on the governmental plan sponsor and participant experience. Amy has over 25 years of experience in the retirement services industry. As a consultant, she worked with plan sponsors in the public and qualified plan market to improve plan design, streamline investment options, and provide fiduciary education. As an executive in recordkeeping, she has focused on improving plan performance metrics for governmental plan sponsors and their employees.
***Registered representative of Voya Financial Advisors, Inc. (member SIPC).
IMPORTANT: The illustrations or other information generated by the calculators are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. This information does not serve, either directly or indirectly, as legal, financial or tax advice and you should always consult a qualified professional legal, financial and/or tax advisor when making decisions related to your individual tax situation.
Products and services offered through the Voya® family of companies.
* While different surveys show varying participation rates for state only, local only or state and local participation, the percentage of employees participating in their employer sponsored plan is consistently lower than those participating in private sector/corporate plans.
Source: Bureau of Labor and Statistics, March 2020 Retirement Benefits: Access, participation and take-up rates.
**Investment adviser representative and registered representative of, and securities and investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC).
1 As of 3/31/21.
2 Secure Retirement Institute® (SRI®) 4Q 2020 Not-For-Profit Markets survey of 19 participating companies, Voya Financial® ranks No.1 in Government 457/401(a) assets as of December 31, 2020 (latest available data with all top five companies reporting).