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Employers Reluctant to Enhance Retirement Benefits

By Stephen Miller  6/25/2010
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Most U.S. companies remain reluctant to make significant changes to their retirement plans, such as adding or enhancing key plan features, according to the 11th Annual Transamerica Retirement Survey, fielded among a nationally representative sample of U.S. employers from Dec. 1, 2009 to Jan. 8, 2010.

The survey was conducted on behalf of the Transamerica Center for Retirement Studies, a nonprofit foundation funded by Transamerica Life Insurance Co. and its affiliates.

Increasing Access to Retirement Plans

“Increasing access to a 401(k) or similar plan for workers, including small business and part-time workers, continues to be an area of major opportunity,” said Catherine Collinson, president of the Transamerica Center for Retirement Studies. “Our corresponding study of workers clarifies the broader influence workplace retirement plans have on an employee’s overall retirement preparedness. Even just the presence of a basic plan can significantly impact savings.”

Previously released findings from the survey revealed a strong correlation between the availability of a 401(k) or similar plan and higher levels of proactive savings behaviors, financial literacy and confidence among workers.

Key Findings

Highlights from the 2009-10 survey are presented below.

Companies cite the importance of retirement benefits. Employers continue to believe that employee-funded retirement plans are important to employees, second only to health insurance. More employers said their retirement plan package is "important" or "very important" to their ability to attract and retain employees (89 percent in 2009-10, up from 79 percent in 2008-09).

More companies are providing retirement plans. The vast majority of companies (82 percent) offered a 401(k) or similar employee-funded plan in 2009-10, up slightly from 78 percent in 2008-09. But plan sponsors that reported offering a matching contribution fell to 69 percent during 2009 from 76 percent the prior year.

For companies that don’t offer a plan, 87 percent were unlikely to do so in the near future. This was a sharp increase from the prior year’s survey in which only 59 percent indicated they weren’t likely to offer a retirement plan. This shift was much more prominent among small businesses. Cost concerns continue to be a recurring theme for not offering a plan.

Auto enrollment and escalation. 27 percent of employers enrolled employees into their plan automatically, up only slightly from 24 percent the previous year. Large companies (43 percent) remained much more likely than small companies (25 percent) to enroll employees automatically. Of employers that do not enroll their employees automatically, most (84 percent) do not plan to in the future. As in previous years, the most frequently cited reason for not adopting automatic enrollment is that participation is already high. In addition, employers are concerned about cost and administrative complexity.

Roth 401(k). Nearly one-quarter of employers offer a Roth 401(k) or similar option, consistent with the previous year but higher than in 2007, when only 19 percent of employers offered a Roth 401(k). Almost 8 in 10 employers that don’t offer a Roth option don’t plan to in the near future, although large companies were more likely than small companies to consider adding this feature. Perceived lack of employee interest and concerns about administrative complexity were the most frequent explanations for why employers do not plan to adopt a Roth 401(k).

Businesses perceive barriers to offering investment advice. 58 percent of employers offer investment advice and guidance. Among those not offering advice, 88 percent do not plan to in the near future, and significantly more employers cited potential liability as a reason (48 percent vs. 35 percent in the previous year).

Plan changes/investment options. During 2009, about one-quarter (27 percent) of employers who offered a 401(k) or similar plan made changes to their company plan, up slightly from the previous year. Large companies were much more likely to have made a change (40 percent) vs. small companies (25 percent). Of those employers that made changes to their plan, a change in investment selections was the most common and saw the most significant increase from the prior year (48 percent vs. 38 percent previously).

Annuities as a distribution option. Just over one-quarter (26 percent) of employers offered an income annuity as a distribution option for retiring employees in their plan, up slightly from 24 percent the prior year.

Overall plan satisfaction is high. 95 percent of companies that sponsor a 401(k) or similar plan are satisfied with their provider, and 97 percent believe that their employees are satisfied with the company’s plan.

Improving Employee Involvement

Although employers perceive high rates of plan satisfaction among their employees, employers still lack confidence in their employees’ involvement with the plan. Nearly four in five employers agree that employees at their company do not know as much as they should about retirement investing, while fewer than half say that their employees are very involved in monitoring and managing their retirement savings.

Additionally, three-quarters of employers believe that their employees could work until age 65 and still not have enough saved to meet their needs in retirement, while only 53 percent are confident in their employees’ ability to achieve a comfortable lifestyle in retirement.

“Most employers understand that these plans are important to their employees and are key retention tools,” said Collinson. “By adding a retirement plan—or enhancing existing retirement benefits with automatic features, investment advice and retirement income options—employers can increase their impact in helping employees prepare for a secure retirement.”

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Majority Still Shun 401(k) Auto Enrollment, SHRM Online Benefits Discipline, June 2010

Reconsidering Annuities in Retirement Plans, SHRM Online Benefits Discipline, June 2010

More Big Companies Offer Only 401(k) or Cash Balance Plans to New Salaried Workers, SHRM Online Benefits Discipline, June 2010

The Roth 401(k): A 'Value Add' for Your Employees?, SHRM Online Benefits Discipline, August 2005

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