Towers Watson this morning released survey results showing that, despite increased involvement in 401(k) and other defined contribution plans, most U.S. employers lack confidence in the retirement readiness of their employees.
Of the 371 American employers that offer a 401(k) plan as a principal DC retirement option surveyed by Towers Watson, 56% say employee participation levels are at least 80% this year, up 6% from 2010. Most of that increase can be traced to automatic enrollment, which is featured in 65% of respondents’ plans this year, compared to 51% in 2009. Seventy-one percent of those who use auto-enroll also use automatic increase, Towers Watson finds.
Still, Towers Watson reports that plan sponsors fear their DC plans are both underused and poorly understood by workers. Only 26% of respondents think their employees have reasonable expectations about what DC plans can provide and even fewer (22%) say employees usually make informed calls on their retirement savings.
Forty-eight percent of those surveyed believe a larger proportion of older workers will delay retirement.
“Plan sponsor confidence is severely lacking in retirement readiness,” says Robyn Credico, a senior retirement consultant at Towers Watson. “While employers continue to offer various communication vehicles, education and advice tools, and have made recent strides by automating retirement plan savings features and offering investment choices that help employees diversify their savings, it appears that the intended impacts of these moves have fallen short of their goals.”
All is not lost though, TW experts say. “There are several steps employers can take to help their employees generate an adequate income at retirement,” says the firm’s Alec Dike. “These include enhancing communication efforts to provide employees with a better understanding of how DC plans work, including how much to save, investment options, risk and return, and how to monitor and adjust assets.”
To that end, plan sponsors are streamlining investment options, TW finds, perhaps in an effort to overcome participant inertia. In 2010, 32% of DC plan sponsors surveyed offered 20 or more options, down to 24% this year. Most offer between 10 and 19 options and nearly half offer a brokerage window as an option.
However, the use of annuities also has declined. Just 6% of respondents currently offer a lifetime income distribution option and of those, 82% report that less than 5% of participants elect it. Some 45% offer the option only at the time of retirement, and the plan is responsible for the lifetime income distribution.
Seventy-four percent of respondents say the most prevalent reason for offering a DC plan is to offer participants an adequate retirement at a reasonable age; a majority indicate the top three issues driving plan design are benefit competitiveness, plan cost and attraction and retention.
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