(Des Moines, Iowa) - When it comes to getting people to save for retirement, less can be more. Employees who are overwhelmed-if not paralyzed-by the number of significant decisions required to sign up for their workplace retirement plan often yearn for fewer steps and someone to "do-it-for-them." Now, thanks to the Principal Financial Group ®, the nation´s 401(k) leader and total retirement solutions innovator, employees have an easy way to get started, increase their contributions over time and even have retirement professionals manage their money for them.
As part of The Principal Enrollment Suite SM, the new patent pending Easy Enrollment form requires only three simple steps and is already increasing participation and savings rates by helping employees overcome the uncertainty and inertia that often prevents them from saving effectively for retirement. The easy process also helps to reduce administrative and fiduciary concerns for plan sponsors who have been uncomfortable with offering pure automatic enrollment.
"Eighty percent of today´s workers nearing retirement admit they don´t feel confident they´ll have enough money to live comfortably in their golden years. [1] Why? Because they either aren´t participating in their employer´s retirement plan at all or they simply aren´t saving enough," said Monica Kirgan, vice president, Retirement & Investor Services, The Principal ®. "The culprit, we think, is not a lack of information, but too much information about too many significant decisions. Employees often become so confused that they do nothing. The Principal Enrollment Suite turns confusion into understanding and inertia into a successful saving strategy."
Three-step checklist changes behavior
The Easy Enrollment form helps make it easy for employees to put their retirement savings on autopilot with a simple three step checklist:
Decide how much to save. Called Smart Start, this step allows employees to choose the salary deferral rate set by their employer. The deferral rate typically coincides with the employer match. The average Smart Start deferral is five percent, significantly higher than the average three percent deferral without Smart Start.
Automatically increase savings. Principal Step Ahead SM offers a long-term savings benefit by allowing employees to automatically increase their salary deferral rates each year.
Choose investment options. Employees can choose to allocate their investment options themselves or let the retirement professionals do it for them by opting for "do-it-for-me" investment options such as the Principal LifeTime portfolios or the Principal Managed Accounts Program SM.
Employees can enroll online, on paper or by phone
The Principal Enrollment Suite gives employees the option of enrolling through the method they prefer-online, on paper or by phone. Principal e-Enroll SM gives step-by-step instructions and education covering contributions and investment options so employees can enroll anytime and anywhere they have Internet access. Or participants can use the Easy Enrollment paper enrollment option which makes choices easier to understand and helps employees enroll faster.
Ramping up to optimal retirement savings
"Many employees suffer from sticker shock when they perform a retirement calculation and realize they need to save 10% - 15% of their salary in order to save enough for retirement," said Kirgan. "But if they start out saving five percent, which is the average rate selected in our pilot, and then agree to an automatic increase each year for several years, before they know it they are saving at a very effective rate but without the pain of setting aside a big chunk of money all at once." According to Kirgan, it´s not uncommon for employees to sign up at a low rate (the average is three percent) but never go back to increase the amount they´re saving. The Principal Financial Well Being Index SM for the Second Quarter 2006 found that 65 percent of workers have not changed their deferral in the past year.
Results from The Principal Enrollment Suite
The numbers show that The Principal Enrollment Suite is effectively changing employees´ saving behavior:
- Since it was introduced to clients of The Principal, the simple, three-step checklist has resulted in a 5.34% higher participation rate than the standard enrollment form.
- The average Smart Start deferral is five percent, significantly higher than the average three percent deferral without Smart Start.
- The average Principal Step Ahead Option deferral increase is 1.4 percent per year for an average of five years. "After six years, the average employee would be deferring 12 percent of their earnings into their company-sponsored retirement plan," Kirgan explains. "This is a phenomenal improvement in employees´ annual retirement saving level."
Simplifies plan administrative duties
In addition to increasing participation and deferrals, The Principal Enrollment Suite also eases employers´ plan administration duties by delivering a single, comprehensive deferral report that can be integrated into payroll systems. It also allows The Principal to provide a variety of helpful participation reports to employers.
About the Principal Financial Group
The Principal Financial Group (The Principal ®) [2] is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies and national network of financial professionals. A member of the Fortune 500, the Principal Financial Group has $205.3 billion in assets under management [3]and serves some 16.0 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com .
Principal LifeTime Funds are offered through a Principal Investors mutual fund. For more information about the investment option, including its full name, please see the Principal Investors Fund, Inc. Profile or visit The Principal Retirement Service Center© at www.principal.com.
Insurance products and services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, member SIPC and/or independent broker dealers. Securities sold by a Princor Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group, Des Moines, IA 50392.
Investment advice provided through the Principal Managed Account Program is provided by Ibbotson Associates. Access to the advice and securities and advisory products are offered through Princor Financial Services Corporation, 800.247.4123, member SIPC. Princor and Principal Life are members of the Principal Financial Group, Des Moines, Iowa, 50392.
Before investing in mutual funds, investors should carefully consider the investment objectives, risks, charges and expenses of the funds. This and other information is contained in the free prospectus, which can be obtained from your local representative, by visiting www.principal.com, or by contacting us at 1.800.547.7754. Please read the prospectus carefully before investing money.