More than half of plan participants are ‘retirement ready’ with more than 70% income replacementA new report from John Hancock shows how financial professionals, plan sponsors and plan providers can work together to help Americans stay on track for retirement – in both good economies and market downturns.
John Hancock Retirement, a company of Manulife Investment Management, released its most recent State of the Participant report today, showing nearly 53% of its defined contribution (DC) retirement plan participants are positioned to replace at least 70% of their current income in their retirement years. A common benchmark of retirement readiness, this year’s most recent income replacement data sees an increase of nearly five percentage points from 2020 and the highest income replacement John Hancock Retirement has seen in the report since the data has been available.[1,2]
“In the wake of historically high savings rates and substantial gains in the stock market in 2020 and 2021, we saw improvements in retirement readiness within every age group in 2022, with nearly 70% for those under age 40 on-track,” said Sue Reibel, CEO, John Hancock Retirement. “We are pleased to see these results in the data, and we are optimistic about maintaining these results over the long-term. We are confident that the best way to help plan participants progress towards their retirement goals is to provide them a workplace savings plan that gives access to the information, tools and resources they need to make sound savings and investing decisions.”
Additional findings from the 2022 State of the Participant study include:
Auto-Enrollment and Escalation Features Increase Retirement Readiness
As seen in past reports, the chances of achieving retirement readiness were highest when plan sponsors took advantage of both types of automatic plan features, including auto-enrollment and the auto-increase feature. In 2021, plans that auto-enrolled eligible employees and included automatic annual deferral increases of 1% a year up to 10% achieved average plan-level retirement readiness of 65%. This compares to 52% for plans without any auto features.
The data in the report also found that an increase in the auto-escalation limit has a positive impact on retirement readiness. While a 10% cap has historically been the standard, approximately 60% of plan sponsors are now selecting limits of 15% or higher, with 25% and 15% being the most popular choices.
What’s more, participants are open to saving more each year through auto-escalation. With each passing year, fewer participants opt out of automatic-escalation over five years -with only 5% opting out of auto increases in year four – and only 3%% in year five. The opt-out data suggests that communicating in the first year of enrollment is vitally important to help participants understand the importance of saving more each year and the impact it can have on reaching retirement readiness goals as the most recent report shows more than half of participants opted out of auto-escalation in the first year of enrollment.
During the ‘Great Resignation’ Participants Leaving their Plans Made Mixed Distribution Decisions
A large number of participants have had to make the extremely important decision of what to do with their savings as they have left jobs in record numbers. More than one-half – 61% – of participants leaving their defined contribution plan elected to move their money directly to an IRA or a new employer’s DC plan. However, almost four out of ten of those leaving their plan cashed out their account—which exposed them to immediate tax liability, possible tax penalties and a step backward from their retirement goals. This represents an opportunity for plan providers to provide all departing employees with estimates of the amount they would save on current taxes as well as the potential growth they would experience by making a timely rollover or electing to remain in their current plan.
ESG Funds Bring Greater Diversity of Offerings to Participants
More than one-in-ten (11%) of defined contribution open architecture plans administered by John Hancock Retirement make environmental, social, and governance (ESG) funds directly available as an option for plan participants, with a total of 80 funds represented. This number may grow in the future, as the U.S. Department of Labor proposed a change to ERISA in October 2021 that would officially allow fiduciaries to consider ESG factors in selecting funds for their DC plan lineups. The interest we’ve seen on ESG fund option adoption has taken place despite these rules not yet being effective. Interestingly, while some industry trends have shown that younger participants would be attracted to ESG funds, John Hancock Retirement data shows the average age of those investing in these strategies as closer to 50 years of age.
Staying on Track for Retirement in a High Inflation Environment
Increasing inflation can have a negative impact on retirement plans. Investors may feel as though they’re facing the difficult decision of adding money to their portfolio in the short term, decreasing their income goals in retirement or postponing retirement. However, evaluating an investment strategy, such as stable value funds, can potentially offer a hedge against inflation.
Stable value funds seek to offer a higher yield than money market funds and short to intermediate bond-like performance—all with an insurance-backed guarantee. As the U.S. continues to deal with the highest inflation in decades, the unique advantages of stable value—including their guarantees and ability to help counter inflation—make them a potentially attractive option.
Building a retirement portfolio takes years of planning and discipline, and as the past few years have shown, plans can come under stress by any number of factors. Understanding the impact of inflation on portfolios can be an important tool to help investors plan for retirement.
“While the data showing gains in retirement readiness across age groups is very encouraging, we understand that economic conditions and each individual’s personal situation can present challenges. Our message is to stay committed to saving, consider increasing contributions when you are able and remain focused on your risk tolerance and time horizon when making investment decisions,” said Scott Francolini, Head of Strategic Relationship Management and Consulting, John Hancock Retirement. “We’re committed to continuing to work closely with plan sponsors and financial professionals to help support Americans along their journey to retirement readiness.”
About John Hancock Retirement
John Hancock Retirement is the U.S. retirement business of Manulife Investment Management. For more than 50 years, we’ve helped people plan and invest for retirement; today, we’re one of the largest full-service providers in the United States.[i] We take a hands-on consultative approach based on the idea that no two plans- and no two plan participants are exactly alike. We partner with plan sponsors, financial professionals, and third-party administrators to ensure that every plan is personal to the participant and delivers results.
As of March 31, 2022, John Hancock serviced over 54,000 retirement plans with over 3.1 million participants and over $215 billion in AUMA.[ii]
About Manulife Investment Management
Manulife Investment Management is the global brand for the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship and the full resources of our parent company to serve individuals, institutions, and retirement plan members worldwide.
Headquartered in Toronto, our leading capabilities in public and private markets are strengthened by an investment footprint that spans 19 geographies. We complement these capabilities by providing access to a network of unaffiliated asset managers from around the world. We’re committed to investing responsibly across our businesses. We develop innovative global frameworks for sustainable investing, collaboratively engage with companies in our securities portfolios, and maintain a high standard of stewardship where we own and operate assets, and we believe in supporting financial well-being through our workplace retirement plans. Today, plan sponsors around the world rely on our retirement plan administration and investment expertise to help their employees plan for, save for and live a better retirement. Not all offerings are available in all jurisdictions. For additional information, please visit manulifeim.com.
 All data is from John Hancock’s open-architecture platform. 2021 data reflects its 1.5 million participants, 1,645 plans, and $112.9 billion in assets under management and administration (AUMA) as of 12/31/21. 2022 data is based on its 1.6 million participants, 1,716 plans, and $108.5 billion in AUMA as of 3/31/22.
 The inputs to this calculation include current age, salary, account balance, participant contribution, enrollment in auto-escalation, employer matching and discretionary contributions, pension eligibility, and projected Social Security benefits.
 There are advantages and disadvantages to all rollover options. Participants are encouraged to review their options to determine if staying in a retirement plan, rolling over to an IRA, or another option is best for them.
 ESG investing risk. Incorporating ESG criteria and investing primarily in instruments that have certain ESG characteristics, as determined by the manager, carries the risk that the fund may perform differently, including underperforming, funds that do not utilize an ESG investment strategy.
 Stable value portfolios typically invest in a diversified portfolio of bonds and enter into wrapper agreements with financial companies to prevent fluctuations in their share prices. Although a portfolio will seek to maintain a stable value, there is a risk that it will not be able to do so, and participants may lose their investment if both the Fund’s investment portfolio and the wrapper provider fail.
[i] “2022 Defined Recordkeeper Survey,” PLANSPONSOR, 2022.
[ii] As of Mar 31, 2022, John Hancock Life Insurance Company (USA) supported 49,948 plans, 1,612,474 participants, and $ 103,486,356,639.34 in AUMA. John Hancock Life Insurance Company of New York supported 2,616 plans, 77,356 participants, and $ 5,901,987,236.84 in AUMA. John Hancock Retirement Plan Services, LLC supported 1,710 plans, 1,420,555 participants, and $106,486,666,017.89 in AUMA. Participant Counts reflect all active participants with a balance. Approximate unaudited figures for John Hancock, provided on a U.S. statutory basis.