Employers May Underestimate the Importance of 401(k)s

While a majority of employers believe that offering a 401(k) plan is important for attracting and retaining employees, some may be underestimating their significance, according to a new study.

The Transamerica Center for Retirement Studies’ 18th Annual Retirement Survey finds that the vast majority of workers (88%) view a 401(k) or similar plan as an important benefit. Yet, only 75% of employers believe that their employees see such a benefit as important. Additionally, more workers (62%) than employers (45%) see this benefit as being “very important.”

Based on a survey of more than 1,800 for-profit employers with five or more employees, TCRS’ study – “Striking Similarities and Disconcerting Disconnects: Employers, Workers, and Retirement Security” – seeks to better understand employers’ views on their employees’ future retirement and how they are helping them prepare for retirement. The study also provides context by comparing the employer survey findings with TCRS’ survey of 6,372 workers.

Among employers that do not offer a 401(k) or similar plan, only 27% say that they are likely to begin sponsoring a plan in the next two years. The most often cited reasons among employers that are not planning to do so include:

  • Company is not big enough (58%)
  • Concerns about cost (41%)
  • Employees are not interested (22%)

One positive note, however, is that 25% of employers that are not likely to offer a plan say 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.

Another surprising disconnect between employers’ perceptions and workers’ retirement-related preparations is that 72% of employers believe their employees prefer not to think about retirement until they get closer to their retirement date, compared to only 40% of workers who feel this way.

Moreover, only half of employer respondents think employees are very involved in monitoring and managing their retirement savings, compared to 65% of workers who say they are. In fact, 66% of workers say they would like more information and advice from their employers on how to reach their retirement goals, yet only 52% of employers believe this to be the case.

When asked which retirement plan provider resources they find most helpful, workers provided the following responses:

  • Quarterly statements (86%)
  • Professional advice on how to invest their retirement savings (85%)
  • Online calculators and tools to project savings and income (84%)
  • Educational articles and videos that share insights on how to save for a secure retirement (79%)
  • Informative emails sent to my work and/or my personal address (76%)

Meanwhile, mobile apps that project retirement savings and income needs (74%) and that manage accounts (73%) have gained popularity in recent years, as well as information on social media platforms (53%).

Advisor Usage

Other findings show that 68% of all employers report using a professional advisor when selecting their company’s retirement plan. Not surprisingly, medium (76%) and large companies (73%) are more likely to do so than small companies (66%). The most common types of advisors used when selecting a plan include:

  • Financial planners/brokers (38%)
  • Investment advisors (35%)
  • Accountants/CPAs (25%)

Also not surprisingly, large and medium companies are more likely to utilize a benefits consultant (37% and 33%, respectively) than small companies (13%).

Retirement Transition   

The study further emphasizes that employers offering a 401(k) or similar plan have a huge opportunity to work with their retirement plan providers to supply their participants with resources. Yet, one in five plan sponsors (22%) report that they do “nothing” to help employees transition their savings and finances into retirement. Moreover, fewer than two in five provide assistance in the form of educational resources, information about distribution options, retirement planning materials, ability to make systematic withdrawals, referrals or offer an annuity as a payout option. 

Meanwhile, a large majority (70%) of employer respondents consider their companies to be “aging friendly” by offering opportunities, work arrangements, and training and tools needed for employees of all ages to be successful in their current role or contribution to the company. By comparison, however, only 56% of workers consider their employers to be “aging friendly.”

In addition, when asked if they have a formal phased retirement program, only 20% of employers offer a program for employees who want to transition into retirement. In contrast, 47% of workers are envisioning a phased transition by reducing work hours (30%) or working in a different capacity that is less demanding and/or brings greater personal satisfaction (17%).

“Employers play an all-critical role in promoting retirement security among workers, yet it’s important to remember that their raison d’être is running a business. Working together, policymakers and the retirement industry must make it as easy, affordable and worry-free as possible for employers to offer retirement plans along with other employee benefits and flexible retirement options to their employees,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS.

Add Your Comments

One Comment

  1. Bradley Dickens
    Posted August 28, 2018 at 10:40 am | Permalink

    Interesting read. It seems that there’s a resource available for smaller companies to join a MEP in lieu of beginning their own 401(k). I like this idea. Saves allot of time and money!!

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