Employee retirement readiness continues to be a top priority for more than three-quarters of 401(k) plan sponsors, according to the 12th Annual 401(k) Benchmarking Survey conducted by Deloitte, the International Foundation of Employee Benefit Plans (IFEBP) and the International Society of Certified Employee Benefit Specialists (ISCEBS).
Eighty-four percent of plan sponsors identified improved participant education as a focus area for their plans, while only 12 percent reported that “most employees are or will be financially prepared for retirement.” However, offering options such as automatic enrollment, Roth 401(k) features and individual financial counseling can improve plan participation and awareness, plan sponsors said:
"Approximately two-thirds of those plan sponsors surveyed believe that less than 10 percent of their employees take advantage of the educational resources offered," said Scott Cole, senior manager, human capital, at Deloitte Consulting LLP. "Simplifying retirement education and making it less daunting or intimidating to participants may be the key to improving participation and retirement readiness in the future."
Boosting Plan Effectiveness
Along similar lines, retirement plan service provider TransAmerica recently recommended five ways to boost the effectiveness of retirement plans as savings vehicles for employees:
1. Define “retirement plan success” as better retirement outcomes for participants. A successful retirement plan should improve workers’ ability to retire with confidence. To improve their retirement readiness, the plan can cover more employees, enroll more of them in the plan and motivate them to save more for retirement. (See "Sweet Spot: Encourage Employees to Defer Adequate Pay to their 401(k)")
2. Use auto-enrollment plus auto-escalation features to improve participation and savings rates. One of the easiest ways to get employees to save more for retirement is to automatically enroll them in the retirement plan and then automatically increase their contributions over time. Although workers have the ability to opt out of automatic features, research indicates most participants keep the contribution increases in place. (See "Auto Features Impact Communication.")
3. Optimize the number of investment choices to improve savings rates. Too many investment choices can tend to paralyze people, possibly causing them to avoid participating in the plan altogether. Limit the number of investments to a reasonable number that will allow employees to invest wisely. (See "On the 401(k) Menu: Do More Funds Help Participants Diversify?")
4. Offer advice on target-date solutions to help participants stay on track over the long term. Target-date funds, which automatically diversify holdings based on the investor’s age and/or risk tolerance, make it easier for participants to stay on track with their investments over time. (See "Use of Target-Date Funds Continues to Surge.")
5. Structure matching contributions to drive savings rates to 10 percent or more. The employer’s matching contribution is a popular incentive to get workers to increase their contribution rates. Over time, employees’ additional contributions can make a dramatic difference in their ability to enjoy a financially healthy retirement. (See "401(k) Match: 'Thresholds' Drive Participation More than Rates.")
The findings were a result of Transamerica’s Retirement Readiness Summit, held March 2013 in Washington, D.C.
“Simple solutions can have a huge, positive impact on the financial future of the average worker,” said Deb Rubin, senior vice president and national practice leader, at Transamerica Retirement Solutions. “Aim to raise awareness on the importance of retirement savings.”
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Additional SHRM Articles:
Income Projections Motivated Savings, SHRM Online Benefits, April 2013
Changes in 401(k) Plans Spur Higher Participation, SHRM Online Benefits page, October 2012
Generation Y Favors Target-Date Funds and Roth 401(k)s, SHRM Online Benefits page, August 2012
SHRM Online Benefits page
SHRM Online Retirement Plans Resource Page