Post-Recession Retirement Planning
March 6, 2012
Recent research suggests that as more Americans find themselves unprepared for a financially secure retirement, employers are rethinking how best to assist their employees in retirement planning.
As the economic recovery proceeds in fits and starts, employers have become increasingly reticent about their employees’ ability to successfully save for retirement, according to recent findings by HR consultancy Aon Hewitt. In response, employers are rethinking their retirement benefits plan strategies and assisting their employees in better preparing for retirement.
Based on a survey of more than 500 large employers in the United States, just 4 percent of employers are "very confident" that their workers will retire with adequate retirement assets, down significantly from 30 percent in 2011. Moreover, only 10 percent of plan sponsors feel "very confident" that their employees are taking accountability for their own retirement success. Aon Hewitt further found that fewer than one-in-five employers (18 percent) are confident that workers will be able to manage their income during retirement.
“The stark drop in the confidence of employers is troubling,” Pamela Hess, director of retirement research at Aon Hewitt, said in an announcement of the findings. “We’ve known for a while that workers weren’t saving enough for retirement, but it seems that with continued tough economic times, employers are realizing just how dire the situation has become for much of their workforce.”
The nonpartisan Employee Benefit Research Institute (EBRI) recently reported that not only are older American workers (age 50+) expecting to work longer, but many now say they expect to never retire.
“The general trend shows that older Americans are expecting to retire later,” Sudipto Banerjee, EBRI research associate, said in a statement. “But the most striking finding is that nearly 20 percent of the sample expects never to stop working and more than 15 percent of the sample don’t know when they are going to retire.”
The percentage of employees planning to retire later increased by six percentage points between 2009 and 2010, and declined by one percentage point over the last year, according to a recent paper by Towers Watson.
“Many employees continue to worry about whether their retirement savings will be sufficient, especially over the long haul,” Towers Watson’s Retirement Planning in a Post-Crisis Economy says. “Roughly two-thirds of employees (68 percent) are ‘somewhat confident’ or ‘very confident’ their retirement resources will see them through the first 15 years, but confidence declines to 47 percent for 25 years.”
Towers Watson notes that “losses from the economic and financial turmoil are more likely to linger for workers nearing retirement than for mid-career and younger employees,” and that “the majority of workers delaying retirement expect to work an additional three years, and one-third plan on five additional years.”
According to a related Towers Watson paper, most employees identify their employer’s retirement program as their primary means of saving for retirement.
“Fortunately,” Aon Hewitt’s Hess notes, employers are “actively taking steps to help their employees get on a better path.”
While more than half (52 percent) of employers will focus on encouraging workers to take greater accountability for their retirement savings in the year ahead, they aren’t asking employees to do it all on their own. Approximately 44 percent will focus on helping workers retire with enough money and most (60 percent) say they will place a greater emphasis on helping employees understand and use the employer-provided resources available to them.
Moreover, employers plan to enhance their defined contribution plan features. As in recent years, plans will continue to add automatic features, expand savings choices and offer employees more resources to help them meet their needs while in retirement.
Meanwhile, automatic enrollment will continue to be one of the biggest retirement trends in the year ahead, albeit with an enhanced focus on outcomes. Today, 55 percent of plan sponsors automatically enroll workers in their employer-provided defined contribution plan, compared with 24 percent in 2006. Moving forward, more than a third (34 percent) of plans are likely to add this feature for new hires in 2012.
Automatic enrollment is only one step in fixing savings challenges. In fact, among workers who are subject to automatic enrollment, most (63 percent) aren’t saving enough to get the full employer match, according to Aon Hewitt’s findings. As a result, nearly one quarter (24 percent) of employers plan to make changes to their automatic feature in 2012. Of those making changes, 26 percent will apply automatic enrollment to existing non-participants, 26 percent will add an automatic contribution escalation feature and 24 percent will increase the initial default rate.
To further help workers meet their retirement savings goals, while also helping them become more accountable, plan sponsors are increasingly adding investment advisory features and solutions. Most employers (79 percent) now offer target-date portfolios, more than half (59 percent) offer online investment guidance and nearly four-in-10 offer online investment advice or managed accounts (39 percent and 38 percent, respectively). For those plans that do not already offer it, 26 percent plan to add online advice.
“Our research shows that when defined contribution investors use employer-provided professional investment advice, they greatly outperform those who invest on their own,” Hess concludes. “Offering a variety of help services to workers better positions them to make smarter savings decisions that keep them moving in the right direction — towards a sound retirement.”