Employees' Retirement Readiness Is Employer Priority

By Stephen Miller Jan 11, 2011

U.S. corporate executives responsible for overseeing employee retirement plans identified retirement readiness as the issue they need the most help with from service providers, according to the 10th Annual 401(k) Survey by Deloitte Consulting LLP, the International Foundation of Employee Benefit Plans, and the International Society of Certified Employee Benefit Specialists. More than 600 U.S. companies responded to the 2010 survey.

Among the findings:

Almost two-thirds (62 percent) of surveyed U.S. plan sponsors believe that their responsibility includes taking an interest in whether employees are tracking toward a comfortable retirement (i.e., offering a retirement plan option that allows participants to plan for a reasonable replacement ratio).

But only 15 percent of plan sponsors believe that most employees will be prepared for retirement if they maintain the status quo.

"While plan sponsors are concerned with the retirement readiness of their employees, they aren't jumping at the chance to use the tools service providers are offering to manage this," said Stacy Sandler, a Deloitte principal.

Trends Highlighted

Showing a substantial rebound from 2009, 39 percent of plan sponsors said that the average participant account balance in their plan exceeded $75,000 in 2010; only 25 percent reported the same in 2009.

Even as plan balances rebounded slowly, participants remained cautious about the state of the economy. A majority (53 percent) indicated that participants were taking a "wait and see" approach. The most common actions taken by participants included:

Increased loan activity (49 percent).

Decreased deferral rates (41 percent).

Increased in-service and hardship withdrawals (40 percent).

No changes (23 percent).

Rebalancing portfolios to be less aggressive (21 percent).

Among other notable findings:

In 2010, more plan sponsors offered employer matching contributions (66 percent, up from 59 percent in 2009). Among companies that had suspended matching contributions, 55 percent reported their intention to reinstate matching contributions in coming months.

The percentage of respondents indicating that they were beginning to consider generational segments within their workforce nearly doubled (to 63 percent in 2010, up from 37 percent in 2009).

Only 25 percent of plan sponsors offered managed accounts. However, more than half (51 percent) made individual financial counseling/investment advice available to all participants.

Less than 5 percent of retirement plans offered retirement income products, and only 12 percent indicated that they were considering adding in-plan or at-retirement income options.

Employees Who Are Unable to Retire Can Be Costly

One way to look at the benefits of offering employees a retirement preparedness program is the cost of having older employees who can't afford to retire, contends financial education provider Financial Finesse.

Those who want to retire but are unable to do so for financial reasons are likely to have significantly higher than average health care costs—which translates directly into increased health insurance premiums and indirectly into greater absenteeism and lower productivity. Also, in the event of layoffs, employers must spend more on severance for employees with more years of service.

Related to declines in performance among older employees who have no choice but to continue to work for financial reasons, expect declines in performance among younger employees unable to move up the career ladder, reducing their morale and motivation.

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Lower Social Security Taxes Can Mean Higher 401(k) Savings, SHRM Online Benefits Discipline, January 2011

More Companies Plan to Restore 401(k) Match, SHRM Online Benefits Discipline, December 2010

401(k) Contributions Rise Along with Concerns over Social Security, SHRM Online Benefits Discipline, December 2010

Study: Typical 401(k) Participant Can’t Retire Until Age 73, SHRM Online Benefits Discipline, December 2010

Investment Advice Effective When Used, but Participation Lags, SHRM Online Benefits Discipline, November 2010

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