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Survey of Employers Finds Low Confidence in Employees’ Retirement Security

Concerns about increasing health care costs and the potential to outlive savings are dampening employers’ confidence in their employees’ retirement futures, new survey results show.

Nearly half of nonprofit and corporate, for-profit employers are only “somewhat confident” in their employees’ retirement futures, and one in five say they are “not at all confident,” according to TIAA’s 2018 Plan Sponsor Retirement Survey.

An overwhelmingly majority (91%) of survey respondents cited rising health care costs followed by outliving retirement savings (77%) as their biggest concerns. Employers also worry that many of their employees are not saving enough (75%) or are choosing not to participate in a retirement plan (55%).

Retirement Income

Opinions diverge among plan sponsors on the issue of retirement income: nonprofits are more likely to recommend lifetime distribution options (32%), while for-profits are more likely to recommend that participants roll over to an IRA and manage withdrawals on their own (23%). While one-third of employers have no preference for how their employees disburse their retirement savings, both non-profit and for-profit employers cited low preferences for their employees staying in their 401(k), registering at 10% and 8%, respectively.

In addition, the survey found that non-profits are twice as likely as for-profits (56% vs 25%) to believe their employees would prefer monthly lifetime income over a lump sum.

Overall, slightly more than half (51%) of all employers think their employees would prefer receiving $2,700 a month for life rather than a $500,000 lump sum at retirement, echoing an earlier TIAA study in which 62% of employees said they would make that choice.

Nevertheless, while employees reportedly voice a strong interest in lifetime income options, the survey found that few have access through their employer retirement savings plans. According to the findings:

  • only 12% of employers offer annuities as retirement income options for retirement savings, with TDFs (31%), mutual funds (30%) and stable value funds (20%) being the most common options;

  • 57% of employers expect employees to generate retirement income through systematic and lump sum withdrawals, while 27% said they don’t know how their employees will generate income and 14% expect their employees to generate income from an in-plan annuity; and

  • non-profit plan sponsors are more likely than their for-profit counterparts to advocate for their employees to put their savings into an investment that offers lifetime income distributions once they retire (32% versus 23%).

Improving Retirement Outcomes

While creating the right investment menu is important to improving the outlook for employee retirement, the survey reiterated several other opportunities for plan sponsors to consider:

  • Analyze workforce demographics: 43% of plan sponsors have not analyzed workforce demographics at all or only to a limited extent.

  • Work with retirement plan providers to offer free financial advice, education and retirement planning tools to improve employee engagement and build financial literacy: Plan sponsors say free financial advice (39%) and comprehensive financial education (33%) are the most useful resources for employees and the most critical areas for improving plans and savings.

  • Educate employees about health care costs in retirement and consider offering a retiree health care savings option: 9 of 10 plan sponsors believe that health care costs are the most significant retirement security issue today.

  • Revisit plan design and restructure the plan match formula to help increase savings: 28% of plan sponsors cite increasing or modifying the employer match as the biggest opportunity to help employees maximize their retirement savings.

While budget constraints (63%) and attracting and retaining talent (60%) are also of significant concern for plan sponsors, the study further contends that lifetime income investment options can help maximize an employer’s investment in the plan. “Employers are right to be worried about the myriad of issues employees face in retirement, but there are many tools and approaches available to maximize the effectiveness of the plan and better prepare their employees,” explains Doug Chittenden, executive vice president and president of Institutional Retirement at TIAA.

The phone survey of 1,001 plans sponsors in the non-profit and for-profit sectors was conducted by KRC Research on behalf of TIAA from Mar. 5 to Apr. 17, 2018.