Trust in Financial Institutions Can Affect Retirement Plan Participation

Most workers at small to mid-size businesses trust information from their banks and credit unions, but those who do not may be less likely to participate in a retirement savings plan if offered one, according to a survey by The Pew Charitable Trusts.

The survey of 927 workers without access to a retirement plan on the job asked how trustworthy they find information from their “primary financial institution,” their “HR representative,” or “financial institutions in general.” The results suggest an association between distrust in financial institutions and the likelihood that workers will choose to stay in a retirement savings plan if enrolled automatically. That includes whether they would take part in a state-sponsored individual retirement account with automatic enrollment, known as an auto IRA, or one sponsored by their employer. Still, most of those in the 2016 survey said they find these institutions at least somewhat trustworthy.

The fact that just 49 percent of all private-sector workers participate in an employer-sponsored retirement plan has led policymakers at the state and city levels to consider launching auto IRA programs. Research conducted for the Social Security Administration, however, raises concerns that the level of trust in financial institutions could be a factor in determining program participation, especially among Hispanic workers.

The survey found that 9 in 10 of these workers without access to a workplace retirement plan said they find information from their primary financial institution somewhat or definitely trustworthy; just more than 7 in 10 said the same about information from financial institutions in general or their human resources (HR) representative. Still, substantial shares do not find information from these sources trustworthy.

The survey found that white workers were somewhat less likely to distrust financial information than Hispanics or other nonwhite respondents. Among white workers, only 7 percent said information from their primary financial institution is “somewhat” or “definitely” untrustworthy, compared with 17 percent of Hispanics and 19 percent of other respondents. Previous Pew research shows that Hispanics are among those least likely to have access to workplace retirement plans, making their somewhat greater apprehension toward financial institutions of particular concern.

Separately, men are more distrustful of financial institutions in general than women: 33 percent said these institutions were definitely or somewhat untrustworthy, compared with 22 percent of women.

Those who distrust institutions appear to be warier about taking part in retirement savings plans. Respondents who said they lacked confidence in the institutions were more likely to say they would “probably” or “definitely” choose not to participate in an employer-sponsored plan if automatically enrolled. About 4 in 10 of those who expressed distrust in their primary financial institution said they would opt out, with 12 percent saying they definitely would do so.

Survey respondents were asked separately about whether they would take part in a hypothetical automatic-enrollment savings plan sponsored by their state, rather than their employer. Currently, five states and the city of Seattle are implementing such programs, while about half of states are considering them. This question offered workers the option to raise or lower their contribution rates as an additional alternative to opting in or out.

Among those who said they distrust information from their primary financial institution, 13 percent would opt out and 23 percent were unsure, somewhat more than the 9 percent and 15 percent, respectively, of those who said they trust this institution. Still, most would stay in the plan, even among those who express distrust. Among those who said they distrust their financial firm, more than 6 in 10 would either stay in the program at the default contribution rate or increase that rate. Meanwhile, those who expressed distrust toward their HR representative or financial institutions in general were about as likely to say they would opt out of a state-sponsored program as those who expressed trust in those institutions.

The results should encourage auto-IRA program designers. Still, results suggest that some workers may require special outreach to specifically address their concerns.

States looking to sponsor savings programs for private sector workers should work with employers and employer groups as they design and roll out their plans. Together, they should make providing clear information about the program and its benefits a priority. They also need to consider who delivers the information, and how that is done. Some workers, for example, may prefer to receive information in a language other than English. States also should consider working with trusted community partners to distribute the information, which could help build trust among groups such as immigrants or Hispanic workers.

John Scott is director of The Pew Charitable Trusts’ retirement savings project and Henry Watson is an associate with Pew’s research review and support team.