Young Workers Concerned About Keeping Defined Benefit Plans

Defined contribution plan participants also looking for more support

By Stephen Miller Sep 7, 2010

Older workers’ confidence in their ability to retire comfortably rebounded modestly in 2010, although confidence levels remain well below those prior to the recession. But while concerns among older workers with defined benefit (DB) plans have eased, younger workers who have DB benefits are growing increasingly worried about them, according to a survey by consultancy Towers Watson.

The survey found that the percentage of older workers (ages 50 to 64) who are very confident about having enough resources to live comfortably five years into retirement rose from 44 percent in March 2009 to 50 percent in 2010. In 2007, before the recession, 63 percent of older workers were very confident. More worrisome is that confidence plunges the longer employees look into retirement, withonly 9 percent believing that their assets will last through 25 years of retirement.

Other findings from the survey, fielded in May and June 2010 with responses from nearly 9,100 full-time U.S. workers, include the following:

More than half (55 percent) of all respondents said they had seen significant declines in their retirement savings over the prior two years, a slight improvement from 60 percent in March 2009.

The percentage of employees who are content with their financial situation rose slightly—from 26 percent in March 2009 to 33 percent in 2010.

“Despite some signs of an economic recovery, many employees remain apprehensive about the future of their retirement,” said Kevin Wagner, a senior retirement consultant at Towers Watson. “The financial crisis hit employees hard and eroded their savings and confidence in being able to retire comfortably. And while employees’ personal finances may be recovering, rebuilding their confidence to pre-financial crisis levels may take more than just an economic recovery.”

Younger Workers Concerned

Compared to 2009, fewer older workers are concerned about reduced or eliminated benefits in their DB plans or about their employer’s ability to pay some or all of the benefits they’ve already earned. However, among younger workers (under 40) with DB plans:

More than two-thirds (68 percent) are concerned their employer will reduce future benefits—an increase from 61 percent in 2009.

59 percent are concerned their employer will eliminate benefits—up sharply from 42 percent in 2009.

"Employers may have to prepare for the impact delayed retirement patterns will have on workforce planning, talent management and employee productivity," according to Towers Watson's analysis. "Employers may also want to take advantage of this opportunity to engage employees in retirement planning earlier in their careers and consider the effect that an emerging workforce tendency toward risk aversion will have on benefit design overall."

401(k) Participants Are Dissatisfied with Plan Support

Only one-third of participants in 401(k) and other defined contribution plans express satisfaction about the retirement plan support they get from their employer, according to the Second Annual DC Participant Experience Study. Making available annual retirement planning meetings was a top driver for improving satisfaction with retirement benefits, the survey found.

"Plan participants want to do a better job of using their defined contribution plan to accumulate enough for retirement. A carefully designed communications/education program that is personalized as much as possible is needed," said Mathew Greenwald, president of research firm Mathew Greenwald and Associates, which conducted the study with consultancy KK & Co.

The 2010 study reveals that:

60 percent of participants want more personalized and effective communications, especially using current technologies such as websites, proactive e-mails, mobile devices and on-demand videos.

Almost 80 percent of participants are interested in proactive analysis and messaging that recommends how they could improve their retirement plan savings.

Over a third would be interested in an investment option that produces monthly income for life.

A majority of employees want specific retirement planning assistance.

The survey gathered information through interviews with more than 1,000 U.S. defined contribution plan participants in July 2010 and with 1,049 participants in August 2009.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

SHRM Poll: 401(k) Investment Education and Advice, SHRM Online Benefits Discipline, September 2010

Americans Wish They Had a Pension, Would Consider Annuities, SHRM Online Benefits Discipline, August 2010

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