Few workers are very confident in their retirement prospects and many are planning to work past the typical retirement age, yet few employers have updated their business practices to support them, a new study warns.
As part of its 19th annual retirement survey, the Transamerica Center for Retirement Studies (TCRS) surveyed more than 1,800 employers of for-profit companies with five or more employees to examine their business practices and benefit offerings that enable people to work, save and transition into retirement.
In the resulting research report, “Employers: The Retirement Security Challenge,” TCRS reveals that 54% of employee respondents say they either expect to retire after age 65 or don’t plan to retire at all. Of those, 14% plan to work full-time and 40% plan to work part time. Many employers acknowledge that expectation, with 76% believing that many employees plan to continue working in retirement – but only 18% have a formal phased retirement program.
TCRS also found that while 64% of workers overall are confident they will be able to retire with a comfortable lifestyle, only 18% are “very confident.”
“As people live longer, we need to rethink the amount of time spent in the workforce and in retirement. Mathematically, it is challenging for workers to spend 30 to 40 years in the workforce and save enough for a retirement that could easily last 20, 30 or more years,” notes Catherine Collinson, CEO and president of Transamerica Institute and TCRS. “Most workers want and need to extend their working lives into older age with the flexibility to transition into retirement. However, their ability to do so is highly dependent on their employers.”
As such, TCRS suggests that plan sponsors should do more to assist with retirement transition, emphasizing that plan sponsors have a significant opportunity to work with their retirement plan providers to assist them. The organization found, however, that few plan sponsors provide things like:
- educational resources (30%);
- information about distribution options (28%);
- retirement planning materials (25%); or
- an income annuity as a payout option in their retirement plan (17%).
Moreover, 22% of plan sponsors say they do “nothing” to help employees transition their savings and finances into retirement, with 26% of small companies saying this compared with only 7% of both medium and large companies.
For those that do offer educational resources, the most helpful resources cited by workers are quarterly statements (87%), online calculators to project savings and income (85%) and professional advice on how to invest their retirement savings (84%). Mobile apps that manage accounts (80%) were also found to be helpful, but information on social media platforms was the least helpful of the resources listed (59%).
MEPs Show Promise
Among companies that don’t offer a 401(k) or other DC plan, only 31% say they are likely to begin sponsoring a plan in the next two years. The most frequently cited reasons for not planning to do so include:
- company is not big enough (54%);
- concerns about cost (42%);
- employees are not interested (18%);
- company or management not interested (18%); and
- concerned about administrative complexity and amount of work involved (14%).
But there may be cause for optimism with regard to the future. According to the findings, 23% of those not likely to offer a plan say that they would consider joining a multiple employer plan (MEP) offered by a reputable vendor who handles many of the fiduciary and administrative duties at a reasonable cost.
Not surprisingly, the small-business market appears to be the most significant opportunity to expand retirement plan coverage. TCRS found that 88% of large companies (500 or more employees) and 85% of medium companies (100 to 499 employees) offer a 401(k) or similar plan to their employees, but only 60% of small companies (fewer than 100 employees) offer a plan.
Auto Features
TCRS also found that 21% of plan sponsors have adopted automatic enrollment, including 28% of large, 25% of medium and 15% of small companies. Among them, the median default contribution rate is 5% of pay.
Fifty-one percent of plan sponsors have adopted automatic escalation. Not surprisingly, auto-escalation is more common at large and medium companies (both 66%) than at small companies (45%).
Among plan sponsors that dn’t offer automatic enrollment, the survey found that only 28% plan to do so in the future. In addition, 40% said they do not plan to offer it and 32% say they are “not sure.” Among those not planning to offer it, the three most frequently cited reasons are participation rates already being high (44%), concerns about employee resistance (33%) and concerns about cost (24%).
That said, automatic features apparently have strong appeal among workers. TCRS found that 80% of workers find automatic enrollment to a 401(k) or similar retirement plan to be appealing, a finding that is consistent by company size. Workers indicate that the appropriate default contribution rate would be 10% (median). What’s more, 76% of workers agree they would probably use automatic escalation.
