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What Are Employers’ Top Concerns About Their 401(k) Plans?

Employer sentiment regarding the most important employee behavior within their 401(k) plan has changed quite drastically over the past 15 years and will likely change again, according to Alight Solutions.

In 2005, interpreting new laws like the safe harbor for automatic rollovers and force-outs from DC plans was a key trend, but while rollovers are still top of mind, employers are now concentrating on how to keep participant balances in the plan. For every employer that prefers terminated participants leave the plan, there are more than six employers that want people to stay in the plan after leaving employment, according to the firm’s 2019 Hot Topics in Retirement and Financial Wellbeing report, “Building on the past, working toward the future.”

Addressing broad financial well-being continues to hold the No. 1 spot from last year, but recognizing retirement readiness has been gaining ground. Now, more than one-quarter of employers (27%) believe the “most important initiative” in DC plans is helping workers develop a plan to reach their retirement savings goals — up from 16% just two years ago.

Interestingly, encouraging higher contribution rates previously held the top spot, but while it is still one of the top categories, its ranking slipped over the past three years, dropping from 28% in 2017 to just 16% in 2019.

The report is based on an annual survey the firm administers to employers in an effort to capture the changes they intend to make to their retirement and financial well-being plans in the year ahead. The 2019 version, which was administered in the fall of 2018, marks the 15thinstallment of the report and features the responses of nearly 175 organizations that employ 7.6 million workers.

“When we compare today’s data to some of the headlines from our Hot Topics reports that were issued five, 10 and 15 years ago, we find that many employer concerns have vanished—while other thoughts have evolved into new initiatives,” the authors observe.

Loan Dissuasion

Another key theme emerging from the report is that employers are focused on dissuading workers from taking loans against their balances.

The percentage of employers troubled by the number of outstanding loans in their plan increased from 76% in 2018 to 83% in 2019. In response, many employers are starting to take action to curb the amount of loan usage in their plan. The percentage of plans with a waiting period between paying off one loan and starting another increased from 22% in 2018 to 29% in 2019, the report notes.

In addition, 38% of companies indicated they are very likely to increase their education efforts on the impact of loans on retirement income. Another 20% indicated they are very likely to target communications to those taking out a loan or who have a loan outstanding.

Action Oriented

Drilling down further, the survey asked organizations whether they have any plans to address certain topics in 2019. Nearly half of employers indicated they are satisfied with their plan participation level – the highest of the topic categories – but among companies that are not satisfied with the current position, 66% indicated that are “very likely” to take action in 2019 to increase participation levels.

Similarly, only 25% of employers are satisfied with their employees’ current contribution levels. But among companies that are not satisfied with their current position, 63% indicated they are likely to take action in 2019 to encourage higher contribution rates.

Two-thirds of employers say they will experience an uptick in retirees over the next three years, so many plans are adding more tools and resources to help with the retirement process, the report further notes. In response to this increase, more than half of employers are very likely to increase communication about the retirement process and another 45% are very likely to provide retirement planning education in the upcoming year.

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