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Retirement Plans

Millennials Coming of Age in the Workforce

Brian Perkins focuses on Millennials and their influence on how employers may think about plan design, communication, and participant engagement. He describes ways employers may be able to use retirement programs to strengthen bonds with their Millennial workers.

Numbering more than 83 million, the Millennial generation has surpassed the Baby Boomers as the United States’ largest living generation. More importantly for retirement plan sponsors, this cohort has also eclipsed Generation X as the U.S. labor force’s largest component.[1] The growing share of Millennials within the workforce presents several challenges for employers. They must address recruitment, training and retention, and create competitive health care and other benefit programs. This article focuses on implications for defined contribution retirement plans and how Millennial population growth may influence how employers think about plan design, communication, and participant engagement strategies. It also describes ways employers may be able to use retirement benefit programs to strengthen relationships with their Millennial workers.

The chart below, courtesy of Pew Research, illustrates the growing significance of the Millennial generation to the U.S. labor force.

U.S. Labor Force by Generation (Pew Research)

The Millennial generation, also known as Generation Y, includes Americans born between 1982 and 2000. As the children of Baby Boomer parents, Millennials are sometimes called the Baby Boom echo. Birth rates in the U.S. reached a peak in 1990, followed by declining rates in the years since. According to Neil Howe and William Strauss, authors of Millenials Rising, this next great generation will “entirely recast the image of youth from downbeat and alienated to upbeat and engaged—with potentially seismic consequences for America.”[2]

It is helpful to examine aspects of Millennials’ financial attitudes and behavior, as well as the social and economic environment during which they entered adulthood. Consider these points:

  • Income. Millennials earn higher inflation-adjusted income than their parents did early in their careers ($34,700 versus $33,900).[3]
  • Debt. Debt is a primary concern for Millennials. The average Millennial college student graduates with loan obligations of $24,000. Four out of ten describe themselves as overwhelmed by college debt. Twenty percent of Millennials carry over $10,000 in credit card debt. Half report losing sleep over their debt.[4]
  • Home Ownership. Home ownership for Americans under age 35 dropped to 36.2 percent in 2014, the lowest level since the U.S. Census Bureau began reporting ownership by age group.[5]
  • Retirement. 60 percent of Millennials are saving for retirement, and more than 60 percent have created an emergency fund for short-term financial uncertainty.[6]

These numbers paint a picture of a generation exposed to—and concerned about—economic and financial uncertainty. For many of them, debt burdens have made home ownership difficult, complicated by memories of the residential housing price collapse of 2008.

Recent research suggests that Millennials have been, so far, a nomadic labor presence. According to a 2014 survey, over 60 percent of working Millennials planned to leave their jobs within their first three years; employee turnover data shows they followed through with their intentions. The median job tenure for Millennials is just above three years.[7] This level of turnover means that employers face higher replacement costs, costs that can range from 90 to 200 percent of annual salary, including the cost of lost productivity, recruitment, interviewing, and training of new talent.

Given the importance Millennials place on financial security, it’s no surprise that retirement plans play a role in their employment decisions. Approximately 76 percent of Millennials reported that retirement benefits are a major factor in their decisions to accept future job offers.[8] Surveys indicate that more than two-thirds of Millennials expect to self-fund retirement.[9] With the future of Social Security benefits unclear, they are more likely than other generations to need to rely on personal savings to meet their retirement income needs. Given these factors, specific approaches to plan design, participant engagement, and investments may enhance the attractiveness of retirement programs for the growing Millennial workforce.

Stretching Matches

Employer contributions are an attractive and important benefit for all employees, not just Millennials, but they clearly value matching contributions. With the median contribution rate for Millennials participating in a 401(k) plan with a company match at 10 percent of annual pay, employers can take steps to enhance their plan designs.[10]

Stretching the match may be an effective technique to get employees to maximize contributions. For example, instead of offering a 50-cent match on every dollar contributed up to 5 percent of salary, an employer may instead offer 25 cents on up to 10 percent of salary. In a plan with a stretch match, employees will be inclined to save at the higher level in order to get the full match. Yet, studies also show that this approach can go too far. A 2015 PLANSPONSOR survey reported that 60 percent of respondents were willing to increase their match when it was stretched to 50 percent of the first 6 percent, the equivalent of 100 percent of the first 3 percent. However, only 40 percent of respondents reported a willingness to contribute at the level required to receive the full match when stretched to 25 percent of the first 12 percent.

Increasing Participant Engagement

Millennials are a technology-savvy group. As the first generation with Internet access during their formative years, they rely upon technology to interact and communicate. Employers may consider partnering with recordkeepers to engage their Millennial workers with new technology, tailoring both their messages and modes of communication to their preferences, including the use of mobile applications. Seventy-one percent of Millennials participating in a 401(k) reported that they find retirement mobile applications to be helpful. While most recordkeepers have launched mobile applications, the content and functionality vary significantly.[11]

Considering the complex interests of this generation—debt reduction, household formation, financial security, and long-term savings—and availability of features such as Roth contributions, employers are introducing financial wellness programs to deliver holistic financial planning education. By implementing targeted programs on relevant topics including budgeting, debt reduction, and retirement planning, companies may be able to improve Millennials’ feelings of security. Figure Two identifies financial topics of interest by generation and highlights how different Millennial preferences are from prior cohorts.

Figure Two: Financial Topics of Interest by Generation


Source: Society for Human Resource Management


Sixty-two percent of Millennials participating in a 401(k) plan use a turnkey asset allocation solution, such as a model portfolio, target date fund, or a managed account.[12] The well-documented rapid growth of target date products, in particular, is expected to continue. Given this likely trend, plan sponsors need to assess the fit between their target date funds, workforce characteristics, and plan design combined with recordkeeper data about how participants are using them.

The personalized nature of managed accounts may particularly appeal to tech-savvy Millennials. A recent study suggests that 61 percent of Millennials want some level of retirement investment advice, yet only 32 percent have access to such services.[13] While many recordkeepers offer managed account services, the services themselves, fees, and fiduciary burden for plan sponsors vary widely, which complicates evaluating, selecting, and monitoring services.


Employers may also consider a solution that provides more comprehensive financial advice to participants. Participant advisory services offer engagement, targeted content, and customized solutions for the entire plan population. While employers may find that Millennials respond to this service, their entire populations can benefit. In a participant survey of plans that use CAPTRUST’s Participant Advisory Services, 92 percent of respondents reported feeling more confident and knowledgeable about planning for retirement, and 96 percent felt that advice services are a valuable employee benefit. Access to advice solutions has been shown to increase deferral rates and improve their portfolio diversification. These changes can have a significant impact on outcomes, providing participants with the potential for higher returns, more retirement income, and a higher probability of retirement success.[14]

The combination of demographic momentum and unique workforce management challenges has made the Millennial generation a focus for all types of organizations. They are a diverse, well-educated population raised with the technological skills in high demand in today’s workplace. However, Millennials are also expensive to train and challenging to retain. Fortunately, retirement plans present an opportunity for employers to engage and connect with Millennials in ways that are in sync with some of this cohorts’ biggest drivers: financial security, connectedness, personalization, and professionally managed investment solutions. By reviewing all aspects of retirement programs with an eye toward this generation, plan sponsors can better achieve workforce management objectives while improving the effectiveness of their plans to help all participants, regardless of their birthdate, achieve a more comfortable retirement.


[1] Richard Fry, “Millennials Surpass Gen Xers as the Largest Generation in U.S. Labor Force,” Pew Research, accessed June 16, 2015,

[2] Neil Howe and William Strauss, Millennials Rising: The Next Great Generation, September 2000.

[3] BMO Wealth Institute, Wealth Generation: Financial Challenges for Generations X and Y, January 2014.

[4] Wells Fargo, Wells Fargo 2014 Millennial Study Report, 2014.

[5] U.S. Census Bureau, “Household Estimates for the United States, by Age of Householder: 1982 to Present,” April 30, 2014.

[6] Wells Fargo, Wells Fargo 2014 Millennial Study Report, 2014.

[7] Department of Labor, “Employee Tenure in 2014,” Bureau of Labor Statistics News Release, September 18, 2014.

[8] Transamerica Center for Retirement Studies, “15 Facts about Millennials’ Retirement Readiness and 7 Steps for Long-Term Success,” 15th Annual Transamerica Retirement Survey of Workers, July 2014.

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] Ibid.

[14] David Blanchette, The Impact of Expert Guidance on Participant Savings and Investment Behaviors, Morningstar Investment Management, August 2014.