Sponsors Enhancing DC Plans to Help Workers Save
Just 4% of employers are very confident that their workers will retire with adequate retirement assets, down substantially from 30% in 2011, according to an Aon Hewitt study. Additionally, only 10% of plan sponsors feel very confident their employees are taking accountability for their own retirement success. Fewer than one-in-five employers (18%) are confident that workers will be able to manage their income during retirement.
More than half (52%) of employers indicated they will focus on encouraging workers to take greater accountability for their retirement savings in the year ahead, but they aren’t asking employees to do it all on their own. Nearly half (44%) of employers will focus on helping workers retire with enough money and most (60%) say they will place a greater emphasis on helping employees understand and use the employer-provided resources available to them.
The survey of more than 500 large U.S. employers representing over 12 million employees found, as in years past, plans will continue to add automatic features, in addition to expanding savings choices and offering employees more resources to help them meet their needs while in retirement.
Currently, 55% of plan sponsors automatically enroll workers in their employer-provided defined contribution plan, up from 24% in 2006. Looking ahead, more than a third (34%) of plans are likely to add this feature for new hires in 2012.Aon Hewitt found that of workers who are subject to automatic enrollment, most (63%) aren’t saving enough to get the full employer match. In response, nearly one quarter (24%) of employers plan to make changes to their automatic feature in 2012. Of those making changes, 26% will apply automatic enrollment to existing non-participants, 26% will add an automatic contribution escalation feature and 24% will increase the initial default rate.
To further help workers meet their retirement savings goals, while also helping them to become more accountable, plan sponsors are increasingly adding investment advisory solutions and features, according to the Aon Hewitt survey. Currently, most employers (79%) offer target-date portfolios. More than half (59%) offer online investment guidance, while nearly four in 10 offer online investment advice or managed accounts (39% and 38%, respectively). For those plans that do not already offer it, 26% plan to offer online advice and 24% will likely add managed accounts in the year ahead.
As employers have moved away from offering defined benefit (DB) plans in favor of DC plans, workers are now left with an annuity gap once filled by DB plans. As a result, more plan sponsors are introducing retirement income solutions either outside, within or alongside the plan. Currently, 16% of employers offer an "in plan" income solution—including either an insurance product, managed account with a drawdown feature or a managed payout fund—while 9% offer an out of plan option.
Looking ahead, 22% plan to adopt one of these solutions in 2012. Further, 42% of employers allow employees to elect an automatic payment option from the plan over an extended period of time. Nearly one quarter (24%) are likely to add this option in 2012.Beyond offering retirement income solutions, employers are increasingly trying to help workers understand how much they can spend each year during retirement. Nearly three quarters (71%) of plans provide online modeling tools for this purpose, and 64% are likely to add these tools in the year ahead.
Other results of the Aon Hewitt survey include:
- Thirty-nine percent of plans offer a Roth savings option, up slightly from 34% in 2011. Twenty-nine percent of plan sponsors are likely to add this option in 2012.
- Less than one quarter (23%) of DB plans provide benefits accruals to new employees, down from 27% in 2010.
- Fourteen percent of DB plans are likely to freeze accruals, and 18% plan to close the plan to new hires.
- Eighty-six percent of DB plans were underfunded as of January 1, 2011.
- Sixty-one percent of employers provide some type of post-retirement medical coverage to current or future retirees. However, most of these plans (40%) are closed to new/future hires.
- To help manage costs, 78% of employers that currently offer retiree health benefits are likely to increase premiums in the year ahead. More than half (53%) plan to increase cost-sharing in the year ahead.
Visit http://aon.com/hottopics to learn more about Aon Hewitt's Hot Topics in Retirement survey.
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