Institutional Retirement and Trust
Driving Plan Health — 2016
Participant behavior
Targeted research
Plan data trends
A message from Joe Ready
Wells Fargo Institutional Retirement and Trust’s mission is to
“Help America’s diverse workforce prepare for a better retirement.”
These are not merely words, but what we focus on each and every
day. As the retirement plan industry continues to evolve, and
defined contribution plans now serve as the primary way Americans
save for retirement, it is crucial that plans are designed to help
participants at every stage of their career — from first day on the
job through retirement.
As a leading retirement plan provider serving more than 5,000
plans, we constantly seek to understand the challenges both plan
sponsors and participants face in preparing for retirement. We
study the data from the plans we administer on an ongoing basis to
observe what works for our plan sponsors and how we can continue
to help improve the outcomes for participants.
Joe Ready
The Driving Plan Health report reflects data from 2011–2016. It
EVP, Director of Institutional
Retirement and Trust
highlights key trends in the areas of participation, contribution rate,
and diversification, and how Wells Fargo ties it all together with our
Plan Health IndexSM score. The report also looks at plan design features that have the biggest impact on
desired outcomes and delves into how nuances in feature design and implementation can greatly impact
effectiveness.
A few key themes from the report:
• Demographics of the plan matter. Age, tenure, and income all impact plan success and will influence
the key measurements within the plan.
• Plan design makes a difference. The features adopted within the plan can, over time, help offset
challenging demographic factors.
• Correct implementation of plan design is essential. It matters how plan sponsors adopt plan features
in order to set the plan up for success.
The Driving Plan Health report also includes an appendix of additional charts and graphs providing
information by plan size, industry, and participant gender, along with a more in-depth look at the impact
of auto features.
We’re confident that this report can spark new conversations around plan design, and we’re here to help.
Contact your Institutional Retirement and Trust representative with any questions regarding the report.
Best regards,
Joe Ready
Table of contents
Executive summary 1
Introduction 2
Participation 3
Contribution rate 7
Diversification 11
Plan Health Index
14
Conclusion 15
Appendix 16
Executive summary
Wells Fargo Institutional Retirement and Trust’s mission
is to “Help America’s diverse workforce prepare for a
better retirement.” To deliver on this mission, we must
first understand current participant behaviors and
what plan design elements are driving these behaviors.
With four million eligible employees across diverse
industries and geographies, Wells Fargo can get a fairly
clear picture of what works to better help plan sponsors
design their retirement plan for success.
These drivers are some of the key items to focus on when
a plan analysis reveals areas in need of improvement.
Each of these drivers is described in this report, as well
as the impact they can have on a plan. Other findings we
uncovered during our analysis include:
Based on research conducted by our dedicated Customer
Insights and Analytics team on the plans we administer,
we analyzed the three key behaviors that will help
participants reach their financial goals for retirement —
participation, contribution rate, and diversification. It may
be difficult to reach their retirement goals if employees
are not participating in the employer-sponsored
retirement plan. Once in the plan, it may be difficult for
participants to grow their accounts if their contribution
rate is low and their account is not diversified
appropriately to meet their retirement goals.
• Plan defaults can make a huge difference in whether a participant
meets his/her goal for a better retirement. These defaults include
automatic enrollment, automatic increase increments and the
upper limit, and the plan’s default investment (i.e., QDIA).
Beyond the simple yes/no answers to whether
participants are meeting goals related to these
behaviors, we studied how the plan sponsor can have an
impact on these behaviors. Participant decision making is
important, but the plan sponsor plays a critical role as well.
Plan design elements such as automatic enrollment
and contribution increase programs, company match
structure, and the chosen default investment can all
trigger better participant outcomes when they are
implemented in a strategic way.
We took an in-depth look at our own book of business to
provide the latest in participant trends for participation,
contribution rate, and diversification coupled with the
best plan design practices that are driving positive
participant behavior.
While many factors — both in and out of the plan
sponsor’s control — influence participant choices, below
are the top drivers for each participant behavior.
Top drivers for key participant behaviors
Participation
Contribution rate
Diversification
Automatic
Enrollment
Total Match
Plan has QDIA
Match Cap
Total Match
Automatic Increase
Communication
Campaigns
1 | Insights from Wells Fargo’s defined contribution plan data
• Participation has increased by 19% during the last five
years, with increases noted across all demographic segments.
Average contribution rate and participant diversification have
also improved during this time span.
• Employee communication campaigns can have an impact on all
areas of participant behavior but have proven to be especially
beneficial for targeting audiences with a lack of investment
diversification.
• Younger employees are reaping some of the benefits of what the
retirement industry has learned over the past several decades.
Given today’s plan design trends, employees just starting
out are likely to be automatically enrolled in the plan and
defaulted into a diversified investment option. Starting at
a young age can give an employee a better chance of saving
what is needed and seeing the growth necessary to prepare for a
better retirement.
• Within all three behaviors, employees with longer tenures
experience better results. Plan sponsors must consider what
role turnover plays in determining plan health.
• In general, the youngest employees are positioned for better
results due to enhanced plan design and the oldest employees
benefit from exposure to the plan, longer tenures, and greater
sense of urgency as retirement becomes imminent. Plan
sponsors need to be aware of the pockets in between that may
have been overlooked and need additional attention to get
them on track.
• A thorough plan analysis can reveal slight changes that can have
a big impact. In many cases, these changes can be made with
little impact on the budget for a plan.
While every retirement plan is unique, we can use
the information gleaned from our entire client base
to understand how a plan change can affect results.
When plan sponsors pinpoint the areas that need to be
addressed and take action based on potential results, the
plan’s health is likely to improve and participants may be
more likely to take important steps toward reaching the
80% income replacement goal.
Introduction
Wells Fargo Institutional Retirement and Trust administers defined
contribution plans representing four million eligible employees. By
analyzing our extensive book of business, we can determine the impact
that individual plan design features have on participant savings behaviors
and overall plan health. This information then helps plan sponsors better
understand the implications of their plan design choices and what changes
may help them achieve goals for the plan and its participants.
Wells Fargo has a diverse book of business with retail, administrative support,
and accommodation/food services industries representing the largest
percentage of eligible employees. The impact of a particular plan feature will
vary based on participant demographics, such as salary and age, as well as
plan sponsor attributes, such as organization size and industry. Wells Fargo
takes these factors into consideration as we focus on what the plan sponsor
can control through plan design.
For this analysis, Wells Fargo looks at three key behaviors of participants —
participation, contribution rate, and diversification. For each of these, we have
set a goal that may help participants stay on track for a better retirement.
Striving to meet all three of these behavior standards early in their career can
help participants optimize their retirement outcomes.
Participant goal: 80%
income replacement
Why 80%? We know some
people may need more than
80%, others less. But research
shows that for a majority of
people 80% is a good place to
start. This goal is prominent in
all participant interactions and
we tell participants how they
are progressing toward the
goal and offer a next best step
for each participant. As we
explore ways to improve plan
design the ultimate purpose is
to help participants reach the
80% income replacement goal.
We will explore each behavior separately and also illustrate how Wells Fargo
looks at the three behaviors together to provide plan sponsors with an overall
Plan Health Index score. With this information, Wells Fargo can work with
plan sponsors to determine where changes in plan design may be necessary.
In addition, statistical analysis has demonstrated that participants who
consistently meet all three of these behavior standards are much more likely
to achieve an income replacement of 80% or greater in retirement than those
who do not. Influencing these behaviors is the best means plan sponsors
have for helping their employees meet their retirement savings goals.
The ideas outlined in this report are focused on helping produce the best
possible outcomes for plan participants. Some plan changes may require
additional funding and resources from the plan sponsor, so all should be
considered in light of the plan’s goals and budget.
Participant behavior
Goal
Participation
An eligible employee is participating
Contribution rate
The participant is contributing at least 10% of pay, including employee and employer contributions
Diversification
The participant is invested in:
• a diversified investment solution (such as a target date fund or managed account product)
• a comprehensive advice program
— OR —
If a participant instead chooses to self-direct investments, the participant is invested in at least two different classes
of equity funds and one fixed income fund, and has less than 20% invested in employer stock
Insights from Wells Fargo’s defined contribution plan data | 2
Participation
Getting employees to participate in the plan is the first critical step for plan
success. In studying the Wells Fargo book of business, we find participation
has increased by 19% in the last five years. Increases can be seen across all
demographic segments.
Participation goal
All eligible employees
participating in the plan.
Participation by Income (% of employees participating in the plan)
100%
‘11
80%
70.6%
61.1%
61.0%
60%
47.9%
81.4%
79.8%
76.3%
73.6%
71.1%
67.1%
‘16
47.4%
40%
30.6%
20%
0%
< 20k
20k–39k
80k–99k
60k–79k
40k–59k
>=100k
Participation by Tenure (% of employees participating in the plan)
100%
‘11
80%
60%
40%
59.3%
53.3%
46.2%
63.9%
62.2%
53.8%
50.9%
60.9%
66.9%
65.3%
70.5%
66.6%
‘16
72.3%
35.5%
20%
0%
< 1 year
1–2 years
5–9 years
3–4 years
10–14 years
15–19 years
>= 20 years
Participation by Generation (% of employees participating in the plan)
100%
‘11
80%
59.2%
60%
40%
44.8%
63.5%
51.8%
65.9%
57.2%
20%
0%
Millennials
3 | Insights from Wells Fargo’s defined contribution plan data
Generation X
Boomers
‘16
Participation
Demographic trends
When analyzing plan health, it’s important to consider the factors that have
an impact on participant decision making. Demographic variables play an
important role: how much an employee is earning, how long the employee
has been employed by the sponsor, and the employee’s age (reported here
by generation). This report illustrates the demographic analysis for each
participant behavior.
When examining participation, our demographic analysis shows:
Income matters
Not surprisingly, the higher
the income, the more likely
the employee is participating.
However, there is positive
movement at all income levels. For
example, participation went from
30.6% in 2011 to 47.9% in 2016
(56.5% increase) for participants
earning less than $20,000 per year,
while participation went from
73.6% in 2011 to 81.4% in 2016
(10.6% increase) for those earning
$100,000 or more.
Long tenure
tops turnover
Participants with longer tenures
have better participation rates.
The alignment between tenure
and participation happens for
a variety of reasons — from
workers realizing saving for
retirement is important as they
age to ongoing exposure to the
plan and its benefits.
With age
comes wisdom
When we looked at participation
by generation, Boomers have
the highest participation rate,
currently at 65.9%. However,
Millennials and Gen Xers
have gained ground in their
participation rates over the last
five years as well. Most notable
is the 32.1% growth in Millennial
participation. We attribute this
to the impact of automatic
enrollment that sweeps in new
employees at the start of their
careers, which we’ll discuss on the
following page.
A closer look
Industry categories with the highest average tenure are also
the ones with the highest participation rates. For example, the
Utilities industry has the highest average tenure for any industry
at 13.8 years and it also has the highest participation rate at
90.7%. The top industries in terms of participation have average
tenures of nine years or more; for example, Finance and Insurance
with 75.5% participation.
Insights from Wells Fargo’s defined contribution plan data | 4
Participation
Key drivers to help increase participation
Participation Top 5 Drivers*
Automatic Enrollment
32.1
Total Match
20.8
Match Cap
18.4
Automatic Increase
Managed Product Offered
*These key drivers are based
on correlations measured by
a Kolmogorov-Smirnov test
(K-S test). The larger the
number, the proportionately
stronger the relationship.
16.7
13.6
Key driver: Automatic Enrollment
Overall participation rates for plans with automatic enrollment are above
80% while plans without it have less than 50% participation. Given these
results, using automatic enrollment may be a strategy to strongly consider;
however, it does matter how this feature is structured for best results.
1. Is automatic enrollment being used for all employees (including those who
previously declined to participate in the plan) or for newly eligible employees
only? If focused on newly eligible, the plan sponsor may be missing a great
opportunity to re-engage employees who declined to participate in the past.
While some may decline participation, inertia can work to the plan sponsor’s
advantage as most employees will not make the effort to opt out. The
average opt-out rate for automatic enrollment is just 10%.
2. Are employees being automatically enrolled at a low contribution rate?
Many plans automatically enroll participants at a 3% default deferral rate
or less. Our data shows that opt out rates do not vary substantially from
lower to higher (6%+) default deferral rates. Plans with lower default deferral
rates have overall lower average deferral rates, which presents its own set of
challenges as we’ll show in the Contribution rate section.
3. If high first-year turnover is a
barrier to adding automatic
enrollment, plan sponsors can
offer voluntary enrollment
based on the plan’s eligibility
requirements while delaying the
automatic enrollment feature
until an employee reaches a
tenure milestone, such as one or
two years of service.
Best practice
Consider enrolling all
employees (both new and
nonparticipating) at a 6%
default deferral rate. Plans
that have implemented
automatic enrollment
at a 6% default deferral
rate average 87%
participation, plans with
automatic enrollment at
a 3% default deferral rate
average 83% participation,
whereas those without
automatic enrollment have
a 48% participation rate.
Opt-Out Rates by Default Deferral Rate
Deferral Rate
3%
6%
15%
11.4%
10%
5%
0%
5 | Insights from Wells Fargo’s defined contribution plan data
10.3%
Participation
Key drivers to help increase participation
Key driver: Total Match
Employer contributions are an important element of successful plan design.
Attention paid to the design of the match has an impact on the health of the
plan, even given budget considerations.
1. Do automatically enrolled employees receive the whole employer match (if
available)? If not, is there an automatic increase program to help participants
work toward receiving the complete employer match? (More details on
automatic increase programs are included in the Contribution rate section.)
2. A higher total match is a driver of behavior even if automatic enrollment is
not used. As the chart shows, the higher the percentage of the match, the
higher the plan’s participation rate.
Average Participation by Total Match in plans without Automatic Enrollment
100%
80%
64.6%
60%
48.7%
56.3%
40%
20%
0%
Match: >=0% <=3%
Match: >3% <=6%
Match: >6% <=9%
Insights from Wells Fargo’s defined contribution plan data | 6
Contribution rate
After getting employees in the plan, focus turns toward helping them
save for their retirement goals. Wells Fargo recommends at least a 10%
contribution rate including participant deferrals and any employer match
or contribution.
Contribution
rate goal
Not surprisingly, contribution rate is the slowest moving category with a 7.3%
increase since 2011, but is still growing across most demographic segments.
Unlike health benefits, most employees are not required to confirm or update
their retirement plan elections on an annual basis, so many people stay at the
same contribution level year after year.
Participants should
consider contributing at
least 10% of pay, including
both employee and
employer contributions.
Contribution Rate by Income (% of participants contributing 10% or more, including employer match)
‘11
60%
40%
28.5%
30.5%
24.6%
20%
33.9%
31.3%
26.4%
38.8%
41.2%
46.2%
48.5%
46.5%
‘16
53.6%
0%
60k–79k
40k–59k
20k–39k
< 20k
80k–99k
>=100k
Contribution Rate by Tenure (% of participants contributing 10% or more, including employer match)
‘11
‘16
60%
40%
20%
26.2% 26.1%
28.2% 30.7%
<1 year
1–2 years
29.9%
34.0%
33.7%
37.9%
38.9% 41.4%
41.9% 44.9%
10–14 years
15–19 years
45.7%
49.5%
0%
3–4 years
5–9 years
>= 20 years
Contribution Rate by Generation (% of participants contributing 10% or more, including employer match)
‘11
60%
40%
20%
28.6%
23.1%
29.7%
35.2%
44.5%
40.2%
0%
Millennials
7 | Insights from Wells Fargo’s defined contribution plan data
Generation X
Boomers
‘16
Contribution rate
Demographic trends
When examining demographic trends as they relate to contribution rates,
our analysis shows:
Income segments
produce some surprises
While income is a factor in
reaching the 10% contribution
rate goal - it is worth noting
that workers earning less than
$20,000 had a higher percentage
of participants meeting the 10%
goal than workers in the $20,000
- $39,000 income range. Workers
earning $100,000 or more who
contribute 10% or more represent
the “most improved” group with
a 15.3% increase since 2011. The
next largest increase came from
workers in the $40,000–$59,000
income range where workers
contributing 10% or more
increased 8.3%.
Long-time tenure
results in higher
contribution rates
Contribution rates go up with
tenure. This may be in part due to
automatic increase programs, but
may also include intangible factors
such as more exposure to the
plan, and saving becoming more
important as the participant ages.
By generation, Boomers have the
highest percent of participants
contributing 10% or more —
currently 44.5%. However, the
percentage of Millennials and Gen
Xers reaching the 10% goal has
increased more over the last five
years, with the former increasing
by 23.8% and the latter by 18.5%.
A closer look
Not surprisingly, deferral rates and total contribution rates (both
employee and employer contributions) tend to increase with age.
15%
Deferral rate
Total contribution rate
11.2%
10%
5%
Boomers lead the way
8.3%
5.8%
9.2%
6.8%
8.7%
0%
Millennials
Generation X
Boomers
Catch-up contributions
Roth contributions
Only 7.7% of participants age 50 and older are
taking advantage of catch-up contributions
which allow them to save an additional $6,000
(indexed for inflation) each year to their 401(k)
plan. Management Companies was the industry
that led the way with 18% of eligible participants
making catch-up contributions, followed closely
by Professional Services at 13%.
Roth (after-tax) 401(k) deferrals continue to gain
traction with 12% use among participants (up
from 8% in 2011). Of participants using the Roth
option, Millennials lead the way at 16% adoption.
Management Companies has the highest industry
usage of Roth deferrals, with 22% of participants
making Roth contributions. Finance and Insurance
companies are a distant second at 14%.
Insights from Wells Fargo’s defined contribution plan data | 8
Contribution rate
Key drivers to help increase contribution rate
Contribution Rate Top 5 Drivers*
Total Match
33.8
Match Cap
23.6
Automatic Increase
17.6
Plan has QDIA
Communication Campaigns
16.8
16.2
*These key drivers are based
on correlations measured by
a Kolmogorov-Smirnov test
(K-S test). The larger the
number, the proportionately
stronger the relationship.
Key driver: Match Cap
We explored total match as a key driver in the Participation section so for
contribution rate we will focus on match cap and automatic increase. Match
cap indicates the structure of the match, i.e. highest deferral rate matched.
Nearly 90% of our clients offer some type of employer match (either
discretionary or fixed) to participants in their retirement plans. Plans that
offer a fixed match average about 46% of their participants reaching the
10% contribution goal; plans that don’t offer a fixed match have only
27% of participants meeting the contribution goal.
For plans that don’t use automatic programs, the match and its structure
may be one of the best ways to drive participant behavior. For example, if a
plan sponsor offers a dollar-for-dollar match on the first 6% of pay and the
median contribution rate is 6%, it appears that employees are “saving to the
match cap.” Would they likewise increase their deferrals if the match structure
changed to 75¢ of the dollar up to 8%? The change would likely be better
received if an extra monetary incentive was attached, such as dollar-fordollar on the first 6% of pay and 50¢ on the dollar for the next 2% of pay. This
could help push a participant’s saving rate to 8% but may also increase the
employer’s match cost.
While incorporating a match or changing its structure is likely to have positive
results on the overall contribution rate, the associated cost that would
accompany any improvement would need to be carefully evaluated by the
retirement plan sponsor.
9 | Insights from Wells Fargo’s defined contribution plan data
Best practice
Structure your automatic
enrollment default
rate and match cap
to put participants on
track to reach the 10%
contribution goal as
quickly as possible.
Contribution rate
Key drivers to help increase contribution rate
Key driver: Automatic Increase
With approximately 66% of our clients using an automatic increase program (also called auto escalation), it can be a key
driver of positive participant behavior, but design of the feature is key to the level of success.
Opt-in versus opt-out
Automatic increase works best with automatic enrollment
While 66% of plans using an
automatic increase program is
impressive, less than 30% of those
plans implemented it on an optout basis. Opt-out simply means
the participant must take action or
“opt-out” of the automatic increase,
otherwise the increase will occur
annually up to the maximum limit
set by the plan sponsor. Using an
opt-out strategy takes advantage of
participant inertia. Plans offering
opt-out automatic increases retain
79% of participants in the program
(meaning only 21% of participants
opted out). Plans that offer automatic
increases using an “opt-in” strategy
(the participant must select to
participate in the program) only have
21% of participants sign up. For best
results, plan sponsors should strongly
consider adding automatic increase
requiring participants to “opt-out”.
The success of an automatic increase program depends on how it is
designed and implemented along with other plan features. Best results are
seen when a plan has both an automatic increase program and automatic
enrollment, specifically automatic enrollment at a high default deferral
rate (6%+). As we discussed in the Participation section, opt out rates
do not vary substantially from automatic enrollment at a lower (3% or
less) to a higher (6%+) default deferral rate, so automatic enrollment at a
higher percentage is a best practice. Here is an example of how automatic
enrollment and automatic increase can work together:
Setting limits
As part of any automatic increase
program, plan sponsors need to
establish the upper limit for when
automatic increases will stop for a
participant. Approximately 39% of
our clients have set the automatic
increase limit at 10% which allows
a participant to reach the 10%
contribution rate goal even without
an employer contribution. A 10% or
higher automatic increase limit is a
suggested best practice.
+1%
+1%
+1%
+1%
+1%
+1%
3%
10%
1 year
8 years
It will take a participant in a plan that automatically enrolls participants at 3% with a 1% annual
automatic increase eight years to reach the 10% goal (assuming no employer contribution).
+2%
6%
10%
1 year
3 years
However, a plan that enrolls participants at 6% and has
a 2% annual automatic increase will have participants at
10% in three years.
Using a higher automatic enrollment rate paired with a higher automatic
increase annual rate is a best practice for better participant retirement
readiness. In general, a best practice is for plan sponsors to encourage
participants to get to the 10% goal as fast as possible. The higher initial
contribution rate also means the money has more time to be invested and
potentially grow, an additional advantage for the participant.
Insights from Wells Fargo’s defined contribution plan data | 10
Diversification
Participating in the plan and making adequate contributions are critical
steps in preparing financially for retirement, but lead to the next important
question — how are participants investing their contributions? Lack of
diversification — whether its having 100% in a stable value fund or an
extremely aggressive emerging markets fund — could have an adverse
impact on participant outcomes. Wells Fargo focuses on a diversification
goal for participant assets (described in the box to the right) that addresses
investors who seek a simplified solution as well as those who prefer to
make investment choices for themselves.
Diversification goal
Diversification by Income (% of participants invested in a diversified portfolio)
100%
‘11
60%
82.7%
81.8%
80%
64.8%
64.2%
80.3%
67.6%
79.9%
79.8%
72.2%
71.3%
70.2%
‘16
78.3%
40%
20%
0%
< 20k
20k–39k
40k–59k
60k–79k
80k–99k
>=100k
Diversification by Tenure (% of participants invested in a diversified portfolio)
100%
‘11
80% 76.2%
86.6%
85.2%
71.7%
60%
83.6%
65.5%
79.6%
61.2%
75.0%
58.2%
‘16
72.6%
72.0%
61.8%
59.2%
40%
20%
0%
<1 year
1–2
years
3–4
years
5–9
years
10–14
years
15–19
years
>=
20 years
Diversification by Generation (% of participants invested in a diversified portfolio)
100%
‘11
83.6%
80%
67.2%
60%
79.6%
63.6%
‘16
76.7%
62.9%
40%
20%
0%
Millennials
Generation X
11 | Insights from Wells Fargo’s defined contribution plan data
Boomers
As a general rule,
Wells Fargo considers
a participant to be
“diversified” if the
participant is invested in
a diversified investment
solution such as a target
date fund, managed
account product, or a
comprehensive advice
program. If a participant
chooses to self-manage
their investments,
Wells Fargo considers
the participant to be
“diversified” if the
participant invests in
at least two different
classes of equity funds
and one fixed income
fund, and has less than
20% invested in employer
stock. While Wells Fargo
considers participants
who meet these criteria
to be “diversified” this is
not intended to indicate
that participants are
appropriately diversified
based on their individual
situations.
Diversification
Demographic trends
Our clients have experienced significant improvement related to diversification over the last five years with an impressive
26.2% increase. A closer look at the demographic trends reveals:
The newest participants have
a diversification advantage
Higher income does not mean
better diversification
Approximately 82% of participants on the lower end of
the income scale meet the diversification goal while 78%
on the higher end meet the diversification goal.
Younger and less tenured employees are more likely to
satisfy the diversification goal, most likely due to being
defaulted into their plan’s Qualified Default Investment
Alternative or QDIA (typically, a target date fund or
managed account/advice program).
Key drivers to help improve diversification
Diversification Top 5 Drivers*
Plan has QDIA
27.1
Communication Campaigns
26.1
Total Match
25.4
Match Cap
Automatic Increase
22
17.9
*These key drivers are based
on correlations measured by
a Kolmogorov-Smirnov test
(K-S test). The larger the
number, the proportionately
stronger the relationship.
Key driver: Plan has QDIA
84% of plans have a QDIA and, of those, 82% use either a target date fund
series or managed account program as their QDIA. This gives the plan
sponsor a level of fiduciary protection while providing participants with a
diversified investment option.
The Pension Protection Act of 2006 encouraged plans to implement automatic
enrollment and required a QDIA to ensure some level of plan sponsor
protection. Since the implementation of the Pension Protection Act, we’ve
seen an uptick in plans offering both. The same inertia that keeps employees
from opting out of automatic enrollment also works for their default into the
QDIA. On average, 72% of participants in our book of business are invested in
their plan’s QDIA. Moreover, our data shows that participants not invested in
QDIAs tend to have much lower chances of meeting the diversification goal.
Only 37% of participants not invested in QDIAs reach the diversification goal.
Assets outside the retirement plan are not considered in this analysis. This is a
snapshot of behavior within the plan only.
Best practice
A retirement plan may
consider offering a QDIA
as a default option for
participant contributions
and may want to consider a
communication campaign
to increase awareness of
the QDIA as a tool to help
participants reach their
diversification goal. Only
37% of participants meet
the diversification goal
within the plan when not
invested in the QDIA.
Insights from Wells Fargo’s defined contribution plan data | 12
Diversification
Key drivers to help improve
diversification
Key driver: Communication Campaigns
Technology with a purpose:
While automatic enrollment and a QDIA seem to help
most younger and less tenured employees reach the
diversification goal, there can be segments of the existing
employee population that entered the plan before such
best practices were in place. Targeting specific participant
segments with diversification messaging can be a
cost-effective way to drive positive participant behavior
and is a recommended best practice.
Right message. Right way. Right time.
Easy enroll
Webinar
Sample Company 401(k) Plan
<First name>, you’re in the game — congrats! But are you keeping your eye on the ball?
Start strong
Keep saving
Check your status
Check your savings status on the Dashboard
Your retirement savings account makes it easier to save for the future. Make the next move by finding
out if you’re on track to reach your savings goal.
• Sign on to your retirement account at wellsfargo.com.
• From the Accounts Summary tab, select your retirement plan account to check your savings status.
• Pay yourself forward — increase your contribution rate by visiting the Actions & Investments tab.
You’re in the game, but is your eye on the ball?
Want to talk it through? Call us at 1-800-SAVE-123 (1-800-728-3123). Our retirement service
representatives are available Monday through Friday, 7:00 a.m. to 11:00 p.m. Eastern Time.
Look ahead to your future — are you on target? Check your status today — and give
yourself a little more peace of mind.
On/Off track mailer
This information and any information provided by employees and representatives of Wells Fargo Bank, N.A. and its affiliates is intended to constitute
investment education under U.S. Department of Labor guidance and does not constitute “investment advice” under the Employee Retirement Income
Security Act of 1974. Neither Wells Fargo nor any of its affiliates, including employees, and representatives, may provide “investment advice” to any participant
or beneficiary regarding the investment of assets in your employer-sponsored retirement plan. Please contact an investment, financial, tax, or legal advisor
regarding your specific situation.
© 2015 Wells Fargo Bank, N.A. All rights reserved. G24937 7-15 PC
13 | Insights from Wells Fargo’s defined contribution plan data
Wells Fargo Institutional
Retirement and Trust
1525 West WT Harris Boulevard
Charlotte, NC 28262-8522
The Wells Fargo Plan Health Index: Bringing it all together
The Wells Fargo Plan Health Index score measures the
percentage of employees in a plan who meet all three
participant behaviors — participation, contribution
rate, and diversification.
37% increase
For our overall book of business, all the participant
behavior metrics have seen a steady increase in the last
five years, albeit some growing faster than others.
The increase in each of the individual metrics has
helped overall plan health. The Plan Health Index score
for our total book of business is 37% higher in 2016
than it was five years ago.
A plan sponsor can use the Plan Health Index score and
the underlying index data to look deeper into their plan
performance and ask key questions, such as:
• Of the three behaviors, is there one behavior
lagging behind the others? Understanding this
could help retirement plan providers and sponsors
determine where to focus future efforts — plan
design and communication/education — to shore
up overall plan health.
• Is there a segment of employees who need extra
help in one area? Do Millennials need additional
encouragement to contribute at a higher rate?
Are employees with long tenures not meeting the
diversification goal?
• Is there a significant number of middle-age
employees who never joined the plan? Do you
want to consider a one-time automatic enrollment
sweep for all employees?
over the last five years
Plan health supports participant
retirement readiness
Statistical analysis has demonstrated that
participants who consistently meet the three
key behavior standards — participation,
10% contribution rate, and diversification —
are much more likely to achieve an income
replacement of 80% or higher in retirement than
those who do not. Influencing these behaviors is
the best means plan sponsors have for helping
employees prepare for retirement.
• Can automatic enrollment be implemented for
employees after they meet key employment
tenure milestones?
• Can the match be structured to drive participants
toward the 10% goal?
Insights from Wells Fargo’s defined contribution plan data | 14
Conclusion
While our plan data over the last five years shows that more participants are
making better decisions for the future, it also shows there is much room for
improvement. Progress has been made, but is it enough to provide for a better
retirement for employees across the board?
Even more important than understanding what has happened in the past
is taking the information in this report and applying the lessons learned to
improve results for the future. Each retirement plan, on its own, will have areas
of opportunities as well as challenges to address. Plan data shows how changes
to plan design — including automatic features, investment defaults, and
matching contributions — can impact the plan and participant results. Targeted
employee communication campaigns play an important role too. In all of these
areas, what steps can be taken, what trends can be tapped, to move the needle
in a better direction for employees in specific demographic segments?
A closer look
Take a look at your plan
and potential changes
that could have an
impact on employee
retirement readiness.
The information in this Driving Plan Health report can help decision makers —
plan sponsors, advisors, and consultants — dig deeper into areas that can lead
to improvements and a better retirement for employees.
Helping America’s diverse workforce
prepare for a better retirement.
15 | Insights from Wells Fargo’s defined contribution plan data
Appendix
Evolution of Plan Health Index metrics
During the past five years, we have experienced steady increases in all three key
participant behaviors — participation, contribution rate, and diversification.
These increases can be attributed to automatic features being added to plan
design, increased communication both direct to employees and in the general
population, and growing concerns over retirement security.
Participation
Contribution Rate
(% of employees participating in
the plan)
100%
(% of participants contributing 10% or
more, including employer match)
‘11
‘16
80%
62.0%
60%
52.1%
100%
‘11
Diversification
(% of participants invested in a
diversified portfolio)
100%
‘16
80%
80%
60%
60%
40%
40%
20%
20%
20%
0%
0%
0%
‘16
79.5%
63.0%
40%
36.9%
34.4%
‘11
Results by plan size
The following charts look at each Plan Health Index metric — participation,
contribution rate, and diversification — by plan size (measured by assets).
Participation by Plan Size
(% of employees participating in the plan)
100%
‘11
‘16
80%
68.0%
60%
40%
54.4%
71.9%
62.9%
Contribution Rate by Plan Size
Diversification by Plan Size
(% of participants contributing 10% or
more, including employer match)
100%
‘11
(% of participants invested in a
diversified portfolio)
‘16
100%
80%
80%
60%
60%
46.7%
40%
31.2% 33.4%
37.8% 38.2%
38.9%
45.3%
42.8%
20%
20%
0%
0%
0%
$100MM
–
$250MM
>$250MM
<$10MM
$10MM
–
$100MM
$100MM >$250MM
–
$250MM
81.9%
80.0%
62.1%
66.5%
68.1%
$10MM
–
$100MM
$100MM >$250MM
–
$250MM
62.7%
40%
20%
$10MM
–
$100MM
‘16
76.6%
68.7% 67.9%
57.7%
46.5%
<$10MM
82.1%
‘11
<$10MM
Insights from Wells Fargo’s defined contribution plan data | 16
Appendix
Results by industry
These charts show the top 10 industries for each participant behavior metric. The best performing industry in 2016 is
shown on the left with the rest of the top 10 in descending order.
Top 10 Industries Based on Participation (% of employees participating in the plan)
100%
‘11
‘16
90.7%
80%
83.1%
80.5%
75.5%
73.5%
70.4%
65.7%
60%
59.2%
57.9%
57.5%
67.4%
55.1%
65.6%
64.4%
60.7%
60.3%
55.5%
54.3%
53.7%
43.7%
40%
20%
0%
Utilities
Management
Companies
Finance and
Insurance
Mining,
Quarrying, and
Oil and Gas
Extraction
Information
Wholesale
Trade
Manufacturing
Other Services
(except Public
Administration)
Professional,
Scientific,
and Technical
Services
Arts,
Entertainment,
and Recreation
Top 10 Industries Based on Contribution Rate (% of participants contributing 10% or more, including employer match)
100%
‘11
‘16
80%
60%
62.5%
56.1%
42.8%
40%
47.7%
46.4% 46.8%
40.4%
44.6%
43.2%
40.4%
39.0%
31.8%
36.1%
38.7%
34.8%
38.4%
38.3%
35.3%
37.8%
29.4%
20%
0%
Utilities
Finance and
Insurance
Mining,
Quarrying,
and Oil and
Gas Extraction
Professional,
Scientific,
and Technical
Services
Public
Administration
Management
Companies
Health Care
and Social
Assistance
Other Services
(except Public
Administration)
Real Estate,
Rental and
Leasing
Wholesale
Trade
Top 10 Industries Based on Diversification (% of participants invested in a diversified portfolio)
100%
‘11
86.6%
80%
74.9%
86.2%
85.5%
83.4%
83.1%
82.6%
82.5%
81.7%
‘16
80.8%
80.6%
73.6%
67.0%
66.5%
60%
67.9%
61.9%
64.0%
63.4%
66.2%
64.1%
40%
20%
0%
Agriculture,
Forestry,
Fishing, and
Hunting
Public
Administration
Arts,
Entertainment,
and Recreation
Health Care
and Social
Assistance
Administrative Management
and Support
Companies
and Waste
Management
and Remediation
Services
17 | Insights from Wells Fargo’s defined contribution plan data
Retail Trade
Transportation
and Warehousing
Finance and
Insurance
Utilities
Appendix
Results by gender
These charts show the breakdown by gender for the three key behaviors.
Participation by Gender (% of employees participating in the plan)
100%
‘11
‘16
80%
60%
66.7%
54.3%
64.5%
53.7%
40%
20%
0%
Female
Male
Contribution Rate by Gender (% of participants contributing 10% or more, including employer match)
100%
‘11
‘16
80%
60%
40%
36.9%
33.1%
38.3%
35.1%
20%
0%
Female
Male
Diversification by Gender (% of participants invested in a diversified portfolio)
100%
‘11
81.6%
80%
60%
64.7%
‘16
78.9%
63.3%
40%
20%
0%
Female
Male
Insights from Wells Fargo’s defined contribution plan data | 18
Appendix
Average balance
These charts show the current average participant account balance by income,
tenure, and generation.
Average Balance by Income
$240,000
‘16
$200,000
$186,923
$160,000
$120,000
$96,532
$80,000
$66,567
$39,153
$40,000
$0
$10,103
$16,091
< 20k
20k–39k
40k–59k
60k–79k
80k–99k
>=100k
Average Balance by Tenure
$240,000
‘16
$216,871
$200,000
$160,000
$124,653
$120,000
$80,000
$77,819
$41,845
$40,000
$0
$5,171
$10,094
<1 year
1–2
years
$19,672
3–4
years
5–9
years
10–14
years
15–19
years
>=
20 years
Average Balance by Generation
$240,000
‘16
$200,000
$160,000
$120,000
$99,951
$80,000
$64,406
$40,000
$18,305
$0
Millennials
Generation X
19 | Insights from Wells Fargo’s defined contribution plan data
Boomers
Appendix
Income replacement*
These charts show the current average income replacement percentage by
income, tenure, and generation.
Income Replacement by Income
100%
80%
‘16
82%
66%
60%
64%
61%
59%
46%
40%
20%
0%
< 20k
20k–39k
40k–59k
60k–79k
80k–99k
>=100k
Income Replacement by Tenure
100%
‘16
80%
68%
69%
<1 year
1–2
years
68%
66%
64%
65%
3–4
years
5–9
years
10–14
years
15–19
years
60%
61%
40%
20%
0%
>=
20 years
Income Replacement by Generation
100%
80%
‘16
78%
62%
60%
51%
40%
20%
0%
Millennials
Generation X
Boomers
*Income replacement
considers plan assets only.
Insights from Wells Fargo’s defined contribution plan data | 20
Appendix
Managed investments
These charts show the percentage of participants using a managed investment
solution by income, tenure, and generation.
Managed Investments by Income
100%
80%
‘16
85%
85%
80%
78%
75%
70%
60%
40%
20%
0%
< 20k
20k–39k
40k–59k
60k–79k
80k–99k
>=100k
Managed Investments by Tenure
100%
‘16
91%
87%
80%
85%
80%
70%
60%
65%
62%
15–19
years
>=
20 years
40%
20%
0%
<1 year
1–2
years
3–4
years
5–9
years
10–14
years
Managed Investments by Generation
100%
80%
‘16
85%
77%
73%
60%
40%
20%
0%
Millennials
Generation X
21 | Insights from Wells Fargo’s defined contribution plan data
Boomers
Appendix
Loans
These charts show the percentage of participants with loans by income, tenure,
and generation.
Loans by Income
100%
‘16
80%
60%
40%
24%
20%
0%
22%
16%
19%
13%
7%
< 20k
20k–39k
40k–59k
60k–79k
80k–99k
>=100k
Loans by Tenure
100%
‘16
80%
60%
40%
20%
0%
17%
24%
29%
32%
29%
10–14
years
15–19
years
>=
20 years
8%
2%
<1 year
1–2
years
3–4
years
5–9
years
Loans by Generation
100%
‘16
80%
60%
40%
20%
25%
15%
19%
0%
Millennials
Generation X
Boomers
Insights from Wells Fargo’s defined contribution plan data | 22
Appendix
Roth deferrals
These charts show the percentage of participants making Roth deferrals (where
allowed) by income, tenure, and generation.
Roth Deferrals by Income
100%
‘16
80%
60%
40%
20%
0%
7%
7%
9%
11%
11%
10%
< 20k
20k–39k
40k–59k
60k–79k
80k–99k
>=100k
Roth Deferrals by Tenure
100%
‘16
80%
60%
40%
20%
11%
14%
15%
13%
10%
9%
8%
<1 year
1–2
years
3–4
years
5–9
years
10–14
years
15–19
years
>=
20 years
0%
Roth Deferrals by Generation
100%
‘16
80%
60%
40%
20%
16%
11%
8%
Generation X
Boomers
0%
Millennials
23 | Insights from Wells Fargo’s defined contribution plan data
Appendix
Impact of automatic enrollment
As this chart shows, the impact of implementing automatic enrollment for
a plan can be quite dramatic. Participants meeting the participation and
diversification goals increase substantially. The percentage of participants
meeting the contribution rate goal is actually less. This could be attributed to
plans automatically enrolling participants at low default contribution rates.
Automatic Enrollment Impact on Plan Health Metrics
100%
Without Auto Enroll
With Auto Enroll
84.6%
83.8%
80%
75.9%
60%
48.2%
40.8%
40%
35.4%
20%
0%
Participation
Contribution Rate
Diversification
Impact of automatic increase
Similar to the automatic enrollment chart, here we see the impact of adding an
automatic increase program to a plan. Again, participation is greatly enhanced
(most likely due to the fact that a plan with an automatic increase program
also has automatic enrollment) and diversification is also increased. However,
the percentage of participants meeting the contribution rate goal is lower with
the increase program in place. This could be attributed to increase programs
being relatively new for most plans. Depending on its structure, a contribution
increase program can require a longer time horizon to see results — especially if
automatic enrollment starts at a low percentage and increases are only 1% a year.
Automatic Increase Impact on Plan Health Metrics
100%
Without Auto Increase
86.5%
80%
60%
With Auto Increase
86.1%
78.1%
58.1%
40%
38.8%
37.4%
20%
0%
Participation
Contribution Rate
Diversification
Insights from Wells Fargo’s defined contribution plan data | 24
Data as of March 31, 2016.
Recordkeeping, trustee, and/or custody services are provided by Wells Fargo Institutional Retirement and Trust, a business unit of Wells Fargo Bank, N.A.
This information is for educational purposes only and does not constitute investment, financial, tax, or legal advice. Please contact your investment, financial,
tax, or legal advisor regarding your specific needs and situation. This information is general in nature and is not intended to be reflective of any specific plan.
© 2016 Wells Fargo Bank, N.A. All rights reserved.