Most Workers Do Not Review 401(k)-Related Education Materials

Employers’ outreach methods fail to promote engagement

By Stephen Miller, CEBS May 10, 2012

Employers and their employees in the U.S. hold different perspectives on how to achieve retirement preparedness through 401(k) plans, according to the results of two newly released studies from Schwab Retirement Plan Services. The studies indicate that, despite efforts by employers to educate workers on the 401(k) offering, most workers remain disengaged and unprepared financially for retirement.

Unengaged Participants

Relatively few 401(k) participants have the desire to manage their workplace savings plan, according to a survey of more than 1,000 workers enrolled in 401(k) plans across the U.S. The survey, conducted by Koski Research on behalf of Schwab, found that:

More than half (52 percent) say they don’t have the time, interest or knowledge to manage their 401(k) portfolio properly.

Nearly three-quarters (73 percent) spend less than eight hours per year managing their 401(k) plan account.

Many (56 percent) do not review plan-related education materials they receive.

Nearly one-third don’t know that they pay fees for their 401(k) plan. Of the 70 percent that understand they pay some sort of fees, 95 percent don’t know about investment fund operating expenses and 67 percent don’t know about plan administration fees.

A significant majority (83 percent) say they are interested in receiving professional investment management from their employer. However, this interest does not translate into action; Schwab data shows just one in 10 participants takes advantage of 401(k) investment management advice when it is offered.

Employer Efforts Fall Short

A separate Schwab survey of more than 200 senior finance and HR executives from large and mid-sized U.S. companies, conducted by CFO Research Services, found that many employers are doubling down on outreach efforts that have not been effective:

More than half (54 percent) of employers report that employees participating in plans are not taking full advantage of the investment options, features and services offered in connection with their 401(k) plan.

In an effort to engage employees better, the majority of employers plan to make as much or more extensive use of traditional outreach methods, including interactive planning tools (93 percent), printed educational materials (93 percent) and in-person workshops (81 percent).

Only 16 percent of employers plan to adopt or promote personalized savings and investment management through a third-party adviser.

“This data suggests that employers and their employees, while sharing a common goal of retirement preparedness, have different points of view on which engagement strategies are most effective in helping employees achieve that goal,” said Dave Gray, vice president of 401(k) client experience at Charles Schwab.

Bridging an Eight-Fold Savings Gap

Among other findings from the 401(k) participant survey, a majority of respondents (61 percent) had calculated the savings they believe they will need for retirement. Among this group, 84 percent were confident that if they reached that goal their savings would last. However, respondents reported on average that they would need to save eight times as much as their current retirement nest egg to reach the amount they calculated they would need in retirement.

"It is encouraging that many of the respondents took steps to estimate how much they need for retirement, but the eight-fold gap between their current savings and their stated goals may reveal a misplaced confidence in their ability to reach those goals," said Gray.

Automating Savings

Automation may be more effective in increasing participation and savings deferral rates than employee education. The management survey found that a growing number of employers are using or considering the use of automatic solutions, and that:

45 percent are auto-enrolling employees, while 25 percent are very or somewhat likely to do so.

30 percent provide automatic deferral escalation, and 22 percent are considering doing so.

"Employers have a unique opportunity to help their employees bridge that savings gap. An approach that integrates automatic enrollment features, including annual savings increases, coupled with lowering costs for employees may help them save more for retirement and meet the goals of both employers and employees based on the concerns reported in these surveys,” Gray said.

Nearly Half of Americans Are Not Contributing to Any Retirement Plan

According to a new survey, 49 percent of Americans said they weren’t contributing to any retirement plan; Americans ages 18-34 were more likely (56 percent) to be among those not saving.

“The findings from this survey were disturbing, given that people will increasingly need to rely on their personal savings to make ends meet in retirement,” said Matthew Drinkwater, associate managing director, LIMRA Retirement Research, which conducted the survey. “It was especially troubling to see that a larger portion of younger Americans—who are less likely to have a defined benefit plan—are not saving for retirement in IRAs or defined contribution plans. In order to have the adequate savings necessary to meet their financial needs in retirement, which could last 20 or more years, it is critical that these individuals begin saving systematically early in their working years.”

“In the long run,” Drinkwater added, “these individuals would benefit if they made even modest contributions to a pre-tax savings plan that could accumulate until retirement.”

Unheeded Warnings

The survey found that only a quarter of all Americans and less than a third of Americans over age 50 worked with a financial professional to plan for retirement. However, even controlling for income, those who did were more likely to be contributing to a defined contribution plan or individual retirement account (IRA). Seventy percent reported that their financial professionals recommended how much they should save for retirement. These findings suggest that financial professionals can have a positive influence on their clients’ saving behavior.

“Despite the extensive news coverage on the need to save for retirement, a large number of Americans are not heeding the warnings and preparing financially,” commented Drinkwater. “Our survey shows that consumers often lack understanding of the savings vehicles that could help them attain their financial goals for retirement.”

The findings are based on a nationally representative survey of Americans who are either the primary financial decision-makers or share responsibility for making financial decisions. The survey was fielded in April 2012.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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