That’s a key conclusion of a recent Hewitt Associates survey of 200 large companies, which found that a scant 18% are confident that their workers will reach the end of their work lives with sufficient assets, a Hewitt news release said. An alarmingly low 12% feel confident that their employees even understand their retirement benefits and are taking responsibility for their retirement future.
“Many employees are just not actively using the retirement programs that are available to them–either it’s not a burning platform, or they don’t feel up to the task. Whatever the reason, companies want to see a change here,” said Lori Lucas, Hewitt director of participant research. “Because they may not be able to rely on a pension plan to fund their retirement, employees need to make better use of remaining retirement savings vehicles such as 401(k) plans. Employers see this as a key issue for 2005 and are looking for ways to encourage workers to take control by equipping them with information and tools to help them improve their saving and investing habits.”
According to Hewitt’s survey, even though most plan sponsors don’t anticipate major defined benefit changes, about one in four (27%) employers say they will consider blocking new employees from participation while one in five is pondering a shift to offer only DC plans.
While more than half (55%) of companies offering hybrid pension plans (cash balance or pension equity) do not anticipate a plan design change in 2005, about three out of 10 companies intend to make a change if legal and regulatory issues are not resolved. The most common intended change is to terminate or freeze the cash balance plan and provide all future retirement benefits under a defined contribution umbrella, the survey found.
The Value of Education
Employers surveyed said they are focusing more of their time on educating employees about the value of 401(k) plans. According to Hewitt’s survey, almost 90% of employers plan to focus on making sure their employees understand how their 401(k) plan works, the value of it and how to access it. They also plan to take steps to promote personal responsibility for retirement planning and emphasize 401(k) plan participation. Seven out of 10 employers (70%) report they will focus on offering additional support to employees to manage the diversification of their 401(k) plan.
Almost half of companies (47%) say they are also likely to automate certain features in their 401(k) plan as a way to increase participation and quality of participation. Key areas of focus for those companies include automatic enrollment, automatic contribution rate increase features and automatic rebalancing (See Fidelity: Life Cycle Funds, Automatic Plan Programs Gaining Popularity ).
About a quarter of employers (24%) are likely to make changes to their 401(k) contributions in 2005. Most are either seeking to increase the company matching contribution or change the structure of the match. Twenty-seven percent of companies say they are likely to implement automatic rollover to an IRA or individual retirement annuity provider, while about one in 10 (11%) will allow these accounts to remain in the plan by reducing the plan force-out limit to $1,000.
Only about one-quarter (28%) of employers say they are somewhat or very likely to develop a phased retirement program in 2005. Employers cite several barriers, including that phased retirement is inconsistent with their workforce strategy (See IRS Puts Out “Phased Retirement” Proposal ).