By Paula Aven Gladych
The majority of U.S. employers are not confident that their employees have done enough to prepare for retirement
In a new survey, Towers Watson found that more than half of the 371 U.S. employers surveyed, who offer a defined contribution retirement plan, reported employee participation levels at or above 80 percent this year, compared to 50 percent two years ago.
Most of this growth in participation can be attributed to a higher use of automatic enrollment, with 65 percent saying they now use this feature compared to 51 percent in 2009.
To encourage adequate participant savings rates, 71 percent of those that use auto-enrollment
also use automatic contribution escalation, which allows a gradual increase in contribution levels over time.
Despite these efforts, the survey shows that employers are still concerned that employees don’t understand and underutilize their DC plans. Only 22 percent believe employees generally make informed decisions about their retirement savings and only 26 percent believe their employees have realistic expectations about what DC plans can provide. Nearly one-half of respondents, 48 percent, expect a greater number of older workers will ultimately delay retirement.
“Plan sponsor confidence is severely lacking in retirement readiness,” said Robyn Credico, a senior retirement consultant at Towers Watson. “While employers continue to offer various communication vehicles, education and advice tools, and have made recent strides by automating retirement plan savings features and offering investment choices that help employees diversify their savings, it appears that the intended impacts of these moves have fallen short of their goals.”
Although nearly three-quarters of respondents said that the main reason they offer a retirement plan is to provide employees with an adequate retirement at a reasonable age, more than half of the respondents cited benefit competitiveness, benefit plan cost and attraction and retention as the top three issues driving DC plan design.
“There are several steps employers can take to help their employees generate an adequate income at retirement
,” said Alec Dike, a senior retirement consultant at Towers Watson. “These include enhancing communication efforts to provide employees with a better understanding of how DC plans work, including how much to save, investment options, risk and return, and how to monitor and adjust assets.”
The survey also found that the number of investment options offered in DC plans has decreased. The number of employers offering 20 or more options declined from 32 percent in 2010 to 24 percent this year. Nearly 70 percent offer between 10 and 19 investment options and nearly one-half of respondents now offer a brokerage window as an option.
Lifetime income distribution options, like annuities, still represent a very small percentage of retirement plan offerings, with only 6 percent of those surveyed saying they had one in place.
The Towers Watson 2012 Defined Contribution Plan Sponsor Survey was conducted in April and May of 2012. A total of 371 401(k) plan sponsors with more than 1,000 employees and $10 million or more in plan assets participated. Ninety-two percent have over $100 million in DC plan assets
, and 64 percent have at least 5,000 employees.
Towers Watson is a global professional services company that helps organizations improve performance through effective people, risk and financial management.
Originally published on BenefitsPro.com