It seems that American workers and employers have listened to NYU economist Paul Romer’s advice that a crisis is a terrible thing to waste. A new study conducted by the Transamerica Center for Retirement Study, “Weathering the Economic Storm: Retirement Plans in the United States, 2007-2012,” features some encouraging news about the state of America’s DC system based on surveys of plan sponsors and participants.
Though much work needs to be done and there is still cause for concern — especially with more hardship withdrawals and loans and the lack of adequate savings for most people — we need to focus on progress, not perfection. The recession has created a “new normal” for plan participants which includes saving more and working longer, as well as lower expectations about returns. Denial is never a good strategy.
And plan sponsors are starting to rebuild a system that not only weathered a huge storm but seems to be waking up to and dealing with the realities of a DC rather than DB world.
Key finding from the Transamerica study include:
• The vast majority of employers — 82% — consider a retirement plan an important benefit for attracting and retaining employees.
• The number of employers offering a 401(k) or similar plan increased from 72% in 2007 to 82% in 2012. This was mostly attributable to small companies with 10 to 499 employees, and is more likely due to the closings of smaller, unstable businesses that did not offer a plan than to healthy businesses adopting new plans.
• Employers offering matching contributions to their 401(k) or similar plan dropped from 80% in 2007 to 70% in 2012; however, of the 17% who said they decreased or suspended their match since 2008, half had already reinstated it.
• Large companies offering automatic features increased from 31% in 2007 to 45% in 2012. Among those firms, 84% have adopted a Qualified Default Investment Alternative (QDIA).
• The number of companies offering a Roth feature in their 401(k)s increased from 19% in 2007 to 32% in 2012.
• Participation rates have remained strong and steady at 77%.
• In 2012, annual salary deferral rates returned to the 2007 median of 7% after having dipped to 6% in 2009, 2010 and 2011.
• Workers reported significant increases in total household retirement savings (estimated median) between 2007 and 2012.
