As the economy continues to falter, employers have become increasingly reticent about their employees' ability to successfully save for retirement, according to a new survey by Aon Hewitt. In response, employers are creating solutions to help rethink their retirement benefits plan strategies and assist their employees in better preparing for retirement.
Five hundred large U.S. employers were surveyed to determine their current and future retirement benefits strategy. According to the findings, just 4% of employers are very confident that their workers will retire with adequate retirement assets, down substantially from 30% in 2011. Additionally, only 10% of plan sponsors feel very confident that their employees are taking accountability for their own retirement success. Fewer than one in five employers (18%) are confident that workers will be able to manage their income during retirement.
"The stark drop in the confidence of employers is troubling," says Pamela Hess, director of Retirement Research at Aon Hewitt. "We've known for a while that workers weren't saving enough for retirement, but it seems that with continued tough economic times, employers are realizing just how dire the situation has become for much of their workforce."
While 52% of employers will focus on encouraging workers to take greater accountability for their retirement savings in the year ahead, they aren't asking employees to do it all on their own. Almost half (44%) of employers will focus on helping workers retire with enough money and most (60%) say that they will place a greater emphasis on helping employees understand and use the employer-provided resources available to them.
Automatic enrollment has been one of the biggest retirement trends in recent years, and will continue to be in the year ahead, albeit with an enhanced focus on outcomes. Currently, 55% of plan sponsors automatically enroll workers in their employer-provided defined contribution plan, up from 24% in 2006. Looking ahead, more than a third (34%) of plans are likely to add this feature for new hires in 2012. While automatic enrollment can help increase participation, it is just one step in fixing savings challenges. Sixty three percent of employees aren't saving enough to get the full employer match. To bump this up, 26% of employers will apply automatic enrollment to existing non-participants, 26% will add an automatic contribution escalation feature, and 24% will increase the initial default rate.
"Automatic enrollment alone isn't enough to get workers where they need to be," says Hess. "Plan sponsors need to step it up by encouraging employees to save at a higher rate."
As employers have moved away from offering defined benefit plans in favor of DC plans, workers are now left with an annuity gap once filled by DB plans. As a result, more plan sponsors are introducing retirement income solutions either outside, within, or alongside the plan. Currently, 16% of employers offer an "in plan" income solution--including either an insurance product, managed account with a drawdown feature or a managed payout fund--while 9% offer an out of plan option. Looking ahead, 22% plan to adopt one of these solutions in 2012. Further, 42% of employers allow employees to elect an automatic payment option from the plan over an extended period of time. Nearly one quarter (24%) are likely to add this option in 2012.
"Once, workers could count on a steady income stream throughout their retirement years," says Hess. "Now, more people are relying exclusively on their DC plan for their retirement savings and that regular 'paycheck' has disappeared, leaving many employees struggling to effectively balance retirement expenses."
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