Most Americans Unprepared for Retirement: Employers Try to Help

IRA The bad news is that your boss probably isn't very confident you're saving enough for your own retirement. The good news is that your employer is probably doing more to see that you're taken care of. Those are the findings of a report released by Aon Hewitt, an international human resources consulting and outsourcing firm.

The survey of 210 mid-to-large U.S. companies representing 6.2 million workers reveals that just 38 percent of employers are confident that workers are taking accountability for their financial future, down from 43 percent in 2010. Further, fewer than a third (30 percent) of companies are confident employees are sufficiently prepared for retirement. As a result, companies are increasingly focusing on adding features and making benefit plan design changes to boost savings rates and promote responsible investing.

In an effort to increase participation in savings plans, more companies are automatically enrolling workers into these plans. In 2010, 57 percent of plans offered automatic enrollment, compared to just 24 percent in 2006. Of the plans that do not currently have this feature, more than one-third (36 percent) are likely to add it in 2011.

"According to another recent Aon Hewitt report, only half of Generation Y workers who are eligible to participate in a defined contribution plan actually do so, leading to a significant gap in retirement savings," said Pamela Hess, director of retirement research at Aon Hewitt. "Auto-enrollment is a relatively simple and effective way for companies to help workers plan for retirement-especially younger workers who may not feel the immediate pressure to save."

Once workers are enrolled in 401(k) plans, their investing habits are not great, according to Aon Hewitt's research. It shows that many employees are not investing in a diversified portfolio, are taking inappropriate risks, and very few rebalance their portfolio regularly, if at all. Therefore, more companies are offering tools and services to help participants make better decisions.

To simplify investment decision making, more than half (56 percent) offer online investment guidance and 36 percent offer online investment advice and managed accounts. In 2010, just 28 percent of employers offered managed accounts. Further, a vast majority (83 percent) offer target-date funds, which often appeal to younger workers.

As companies make changes to their defined contribution plans for 2011, many are adding solutions. In fact, nearly half (47 percent) are likely to add an online guidance feature, over a third of companies (36 percent) are likely to offer online advice and 30 percent are considering offering managed accounts.

Companies are also increasingly focusing on services and products to help workers manage their nest-egg throughout retirement. Nearly two-thirds of employers (61 percent) provide online modeling tools to help employees determine how much they can spend each year of their retirement, based on their current savings levels. Additionally, more than one quarter (27 percent) already provide some form of retirement income solution. Nearly one in five plans (19 percent) facilitate annuities either outside, or within a plan and 13 percent plan to add one of these in-plan solutions this year, including managed payout funds, managed accounts with drawdown feature and annuities.

Other key findings of the survey include:

  • More than a third of employers (34 percent) offer Roth 401(k), up from 29 percent in 2010. Of those not currently offering this option, 38 percent indicate they will add the capability in 2011.
  • Nearly a quarter (23 percent) of employers suspended or reduced company matching contributions in the past two years. Of those, more than half (55 percent) have already reinstated it in some form and 18 percent plan to reinstate or increase it in 2011. Another 11 percent plan to do so in 2012 or later.
  • Retiree medical benefits will continue to decline. Seven-in-ten employers provide some type of post-retirement medical coverage to their current or future retirees. Nearly two thirds (65 percent) currently offer prescription drug coverage to post-65 retirees and file for the Medicare Part D Retiree Drug Subsidy (RDS). However, only 53 percent of companies plan to keep the same strategy in 2013 when the health care reform law eliminates the tax-free nature of the Medicare Part D subsidy.
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