Employers adding 401(k) auto-enrollment in record numbers
As concerns over scare employee retirement accounts mount, plan sponsors are stepping up efforts to help employees do a better job of saving for their post-work years. New research by consulting firm Willis Towers Watson finds that employers are adding in automatic features in record numbers as well as offering higher matching contributions, streamlined investment choices, fee transparency and Roth 401(k) options.
Roughly three-quarters of respondents (73%) — plan sponsors who manage a range of plans from under $200 million in assets to those over $5 billion in assets were polled — are automatically enrolling new participants, compared with 68% in 2014 and 52% in 2009. Sixty percent of respondents also say they are providing auto-escalation within their plans, up from 54% in 2014.
“Helping employees with their long-term financial security has emerged as a very high priority for employers,” says Tammy Hughes, senior retirement consultant for Willis Towers Watson. “With most employers now offering a DC plan as the primary retirement savings vehicle, they have become very focused on how to improve their plans and deliver better outcomes to participants. The enhancements they are making should go a long way toward encouraging greater participant savings as well as wiser investment decisions.”
The majority of respondents said they plan to bolster their retirement efforts by educating employees about a number of retirement issues, including when they will be able to retire, where to save for retirement, how much to save, where and how to invest and how to draw down funds after retirement.
Nearly 40% of companies are starting to auto-enroll employees at a deferral amount that is high enough to receive the full employer matching contribution, though 49% of respondents were still auto-enrolling at amounts under the amount to receive a full employer match. Only 12% of companies surveyed said they auto-enroll above the amount to receive the company matching contribution.
Other significant 401(k) enhancements include offering a Roth 401(k) option and increasing employer contributions. Seventy percent of the 349 plan sponsors polled said they offered a Roth 401(k) option, up significantly from 54% in 2014 and 46% in 2012.
One in four employers said they increased their retirement plan contributions in the past five years. Of those that increased contributions, 60% did so by increasing the employer match; 51% by encouraging employee savings and employee engagement; and 44% by offsetting benefit changes in their defined benefit program.
Another trend taking hold in the retirement space is reducing the number of investment options on the retirement plan’s investment menu. In the past four years, 42% of employers said they reduced the number of investment options available, and another 41% said they plan to do the same by 2020.
The majority of plans, 93%, now offer target-date funds as their qualified default investment alternative, compared with 86% in 2014 and 64% in 2009. Health savings plans also are growing in popularity with 80% of employers saying they offer them and an additional 12% saying they plan to add one in the next year.
Additionally, many plan sponsors have moved to a fixed fee arrangement when it came to recordkeeping fees in 2017, 41% vs. 32% in 2014.
The survey found that only 35% of plan sponsors measure the retirement readiness of their participants annually, and 88% only measure basic plan statistics, such as participation rate, account balance and contribution rate. Additionally, 83% of investment committees at the largest plan sponsors say their top priority is to improve retirement readiness and associated workforce risks, yet only 17% spend time at meetings on retirement readiness.
Given the high priority plan sponsors place on retirement readiness, says Willis Towers Watson senior consultant Kerry Bandow, there still is a “significant opportunity” for employers when it comes to evaluating program success.
“Plan sponsors can evaluate the efficiency of their plan operations and investment management,” she says. “If needed, they can make changes to adopt more efficient models, such as delegating investment decisions to an internal subcommittee, which could allow time to focus on measuring plan outcomes.”