Employers Make Strides in Retirement Security, Though Gaps Persist

Employers should address employee savings shortfalls

Stephen Miller, CEBS By Stephen Miller, CEBS July 9, 2018

Only 18 percent of workers in the U.S. are "very" confident that they will be able to fully retire with a comfortable lifestyle. While far from stellar, that's still up from just 10 percent in 2013, new research shows.

"American workers have seen gains in their retirement accounts over the past five years. The question is whether these gains are adequate for funding their retirement," said Catherine Collinson, CEO and president of the nonprofit Transamerica Center for Retirement Studies, which annually surveys workers' attitudes about retirement.

A Compendium of Findings About American Workers, released in June, draws on the center's late 2017 survey of a nationally representative sample of 6,372 workers. Among the findings:

  • Retirement plan coverage has increased slightly. Seventy-one percent of workers are offered a 401(k) or similar plan by their employers, a finding that is marginally higher than in 2013 (68 percent).
  • Retirement plan coverage varies by employer size. Workers at large companies with 500+ employees are far more likely to be offered a 401(k) or similar plan (82 percent) than those of smaller companies with 5-499 employees (59 percent).
  • Retirement plan participation and contribution rates have increased. Among workers who are offered a 401(k) or similar plan, 81 percent participate (up slightly from 78 percent in 2013), and they contribute 10 percent (median) of their annual salary (up from 7 percent in 2013).
  • Household savings has increased but not enough to last 20 or more years in retirement. American workers' total household retirement savings have grown to $71,000 (estimated median) in 2017, up from $53,000 in 2013. Baby Boomers, who are entering retirement, have saved $164,000 (estimated median) in all household retirement accounts, up from $103,000 in 2013.
  • Lower earners are more reliant on Social Security. Workers with a household income of less than $50,000 most frequently cite Social Security as their expected primary source of income in retirement. Workers with household incomes of at least $50,000 most often expect to rely on 401(k)s, 403(b)s or individual retirement accounts (IRAs).
  • Many want to keep working in retirement. Most workers (56 percent) plan to continue working in retirement, including 14 percent who plan to work full-time and 42 percent who plan to work part-time. These findings are relatively unchanged since 2013.

(Click on graphics to view in a separate window.)

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Demographics and Retirement Preparedness

"All workers share many retirement-related risks; however, each demographic segment faces unique opportunities and challenges," Collinson said. "By increasing an understanding of the commonalities and differences, we can identify solutions to help those in greatest need."

Some demographic indicators of retirement readiness among workers are:

  • Generation X is less confident about retirement than Millennials or Baby Boomers. Fifty-five percent of Generation X workers are somewhat or very confident that they will be able to fully retire with a comfortable lifestyle, compared to 67 percent of Millennial workers and 62 percent of Baby Boomer workers.
  • Women's retirement savings lag behind men's. Men report having an estimated median household retirement savings of $123,000 compared to just $42,000 among women. Men (38 percent) are almost twice as likely as women (20 percent) to say that they have saved $250,000 or more in total household retirement accounts.

Helping Employees Save

Delayed retirements can be costly to employers since a retiring worker is, on average, replaced by a much younger, less expensive one. Older workers who don't retire also can block promotions for mid-level employers, affecting their engagement and causing retention issues.

The Society for Human Resource Management's (SHRM's) 2018 Guide to Public Policy Issues states that SHRM believes "a bedrock of sound fiscal and savings policy is ensuring that every U.S. employee has the opportunity to save and plan for retirement."

To help employees save for retirement, many employers offer financial and retirement planning advice, according to SHRM's 2018 Employee Benefits report, based on responses from a representative sample of SHRM members polled in February and March 2018.

The SHRM survey showed that:

  • 55 percent of organizations offer plan investment advice one-on-one.
  • 48 percent offer general financial advice addressing money matters such as household budgeting and personal financial planning. Advice was offered online (35 percent), one-on-one (34 percent) and in group/classroom settings (29 percent).

Automatic plan features also can promote higher savings rates

Income Stability Sought

The quest for a stable income that retirees can't outlive is a goal shared by most workers, with almost 80 percent reporting this as their No. 1 retirement need, in The State of America's Workforce, a study commissioned by the Indexed Annuity Leadership Council (IALC), a trade group. The survey of 2,103 U.S. full-time workers was conducted during March 2018.

"Retirement planning is riddled with unknowns, whether you have an employer-sponsored plan or not," said Kristen Berman, co-founder and principal at Duke University's Common Cents Lab and a collaborator on the study. "One option to introduce certainty into the retirement equation is exploring a savings vehicle that provides a guaranteed lifetime income, like a fixed indexed annuity. This type of annuity leans into our desire for certainty by providing a steady stream of funds, helping Americans solve the complex math problem known as retirement savings," she said.

SHRM's 2018 Employee Benefits survey showed that just 8 percent of organizations provide retirement plans with an in-plan annuity option, and just 2 percent provide assistance for retirees to purchase an out-of-plan annuity with plan assets.

The decline of defined benefit pensions and concerns over the future of Social Security have stoked concerns over post-employment income, said Lisa Greenwald, executive vice president at Greenwald & Associates, at a recent EBRI forum. "Trying to figure out how to generate income from a [defined contribution] plan is a daunting task, leading people to show interest in anything that hints at an income solution."

But while interest is high, selection of annuities when available in 401(k) plans has been low, said Craig Copeland, senior research associate at EBRI. Plan participants often view these products as "complicated and potentially expensive, and there's an issue of people not wanting to give up assets" to purchase guaranteed income, he noted.

Echoing this view, the second-quarter 2018 issue of The Cerulli Edge, produced by research and consulting firm Cerulli Associates, reports that annuity products within defined contribution plans "continue to face both reputational and real obstacles" as a plan feature despite rising life expectancy that might be seen as making annuities more attractive. However, as an anonymous lifetime-income product executive told Cerulli, "People love guaranteed income, but not annuities."

Retiring Participants Want Advice

Many 401(k) plan participants seek guidance on what to do with their proverbial "pile of money" at retirement, according to Cerulli Associates.

The firm recently asked 1,000 active 401(k) plan participants ages 45 and older, "When you retire, what do you plan to do with your savings?" The results showed that "participants are generally clueless as to what they will do with their accumulated savings," said Jessica Sclafani, director at the Boston-based company. One-quarter of respondents answered, "I don't know" what they'll do with their 401(k) account savings, and another quarter said they "will ask my existing financial advisor for advice," she noted.

"The latter [response] can be read as a marginally more prepared version of 'I don't know,' which, in sum, suggests that half of 401(k) plan participants have no idea what to do with the savings they have diligently set aside for retirement," Sclafani said.

"This data underscores the important role of advisors in supporting a thoughtful and sustainable drawdown strategy," she added, "as there is clearly demand for withdrawal advice from individuals."

Related SHRM Article:

Risk vs. Readiness: The 401(k) Plan Annuity Conundrum, SHRM Online Benefits, February 2018

Employers Are Raising 401(k) Default Savings Rates to 6%, SHRM Online Benefits, August 2016


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