Most Employers Say Retirement Readiness Is a Big Issue

Retirement readiness has become a major issue for 78% of large and midsize U.S. employers that sponsor 401(k) and 403(b) defined contribution (DC) plans, according to a survey by Towers Watson. Additionally, 82% say retirement security will become a more important issue for employees in the next three years.

A vast majority of plan sponsors have taken steps to meet this growing challenge by boosting their savings and investment education programs and embracing automatic features and target-date funds for their DC plans. However, employers understand that more education is necessary. Only 12% say employees know how much they need for a secure retirement while only 20% say their employees feel comfortable making investment decisions.

Fifty-three percent are concerned about older workers delaying retirement. Robyn Credico of Towers Watson said, “With concern over retirement readiness at such high levels, many employers face the risk of having older workers delay retirement. These delayed retirements can weaken productivity, since employees who stay on the job because they cannot afford to retire are more likely to be less engaged and productive than other workers. To minimize this possibility, employers should measure the effectiveness of their plans in meeting retirement goals and, if necessary, determine opportunities where various design, investment and communication features can be used more effectively to optimize the overall program. These efforts will need to be balanced with the benefit plan cost constraints most employers have. Getting employees to understand their savings needs and feel comfortable about retirement remains a significant challenge. New plan features, alone, are not the answer. If employers are to make progress, they must also rely heavily on education and communication so their employees know their options and make informed savings decisions.”

The most common plan features include simple, but diverse investment lineups as well as automated enrollment and deferral features with flexibility for pre-tax and after-tax contributions. Fifty-four percent offer an automatic increase feature for participants’ contributions annually, but only 28% mandate it. Fifty-four percent offer an option to make Roth contributions, but less than 11% of their employees take advantage of these features.

The Health savings account (HSA) is another tax-efficient vehicle for retirement savings. Virtually all companies that offer HSAs and DC plans allocate the contributions separately. Of those that offer HSAs, only 19% educate their workers on the wealth accumulation benefits of a DC plan versus an HSA.

In support of more effective solutions, sponsors continue to simplify the investment offerings to align with participant needs. Sixty-six percent offer 10 to 19 investment options, and 86% use target-date funds as their default option. Sixty-one percent of employers focus their retirement education programs on traditional, passive methods, including account statements, newsletters, group meetings and online webcasts. Less than 10% use mobile apps extensively or have tried gamification, which uses game design to motivate employees to achieve savings goals

Last Updated 08/10/2022

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