Survey Indicates Retirement Benefits are the Last Thing to Go

August 19, 2009 (PLANSPONSOR.com) - The 10th Annual Transamerica Retirement Survey found that while nearly half of U.S. employers surveyed had undertaken cost-cutting measures such as layoffs and salary freezes, relatively few had changed retirement benefits.

Only 10% of employers surveyed indicated they reduced or eliminated retirement benefits in the past 12 months, compared to 39% that have implemented layoffs or downsizing, 23% that reported frozen salaries, and 20% that eliminated bonuses, according to a press release.

Most employers (81%) indicated they feel that their employees view a 401(k) or similar plan as an important benefit, and most employers (79%) who offer a 401(k) or similar employee-funded retirement plan said it is important for attracting and retaining employees.

The overall percentage of employers that made any change to their retirement plans in the last 12 months (24%) remained consistent with past surveys. The press release said the most notable difference from the previous survey, conducted between October and November of 2007, was a decline in the percentage of employers making changes to their investment lineup (9% in 2009 vs. 14% in 2007).

The percentage of employers offering a match fell slightly from 80% to 76%, with the most pronounced decline among large companies with 500 or more employees (78% in 2009 vs. 87% in 2007). This year’s survey found that fewer than 5% of employers decreased their company match in the last 12 months compared to 2% who reported doing so in the 2007 survey.

Only 21% of the employers surveyed offer a company-funded defined benefit pension plan, and of those, 85% are not considering any changes to it within the next 12 months while 9% are not sure.

Looking into the future, relatively few employers indicate they are considering making changes to their retirement plans in the next 12 months. Eighty-three percent of employers now say they are not planning any changes in the next year, while 11% indicate they are considering some form of change. The vast majority (95%) of employers that offer a 401(k) or similar plan agreed that they are satisfied with their retirement plan provider.

The survey of a nationally-representative sample of 596 employers was conducted between January and February of 2009.

The survey found more than half of employers that offer 401(k) or similar plans offer some form of investment guidance or advice (58%), down slightly from the previous survey (61%). Of the 42% of employers that do not offer investment advice, a significant majority (88%) indicate that they do not plan to do so in the future.

Although liability issues remain the biggest concern for employers that do not plan to offer investment advice, far fewer cited it as a reason this year (36% vs. 45% in the previous survey). Transamerica said in a press release that the drop in those concerned about potential liability may in part be explained by provisions of the Pension Protection Act of 2006 that added some fiduciary relief for plan sponsors offering advice as long as the plan meets certain criteria.

A significant percentage of small business plan sponsors with 10 to 499 employees indicated that the main reason for not offering advice was that their employees don't need it (23%). However, the majority of small business workers (53%) indicated they would like more information and advice from their company on how to reach their retirement goals.

Nearly one-quarter (24%) of the companies that offer a 401(k) plan automatically enroll employees - a proportion relatively unchanged from the 2007 survey (23%). Large companies (39%) are more likely to offer automatic enrollment than small companies (21%).

Of the employers surveyed that do not offer automatic enrollment provisions, 80% do not plan to do so in the future. The most commonly cited reason was already-high participation rates (32%), while more than one in five (21%) cited concerns about cost and administrative complexity.

The median default contribution rate for plans with automatic enrollment is 3%, with 29% including a provision to automatically increase participants' contribution rate on the anniversaries of their date of hire.

The number of plans choosing a conservative default investment option fell from 24% to 12% between 2007 and 2009, while a growing number of plan sponsors chose a fund with a diversified mix of investments (e.g., balanced, target maturity or lifecycle fund), or a managed fund for their default.

More information about the Transamerica Center for Retirement Studies is at www.transamericacenter.org .

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