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Retirement Planning > Retirement Investing

More Employers Offer Help Meeting Retirement Goals

By Danielle Andrus

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A survey released Wednesday by Aon Hewitt found employers may be trying to save employees from themselves. The human resources consulting firm found 38% of employers are confident that their employees are taking accountability for their financial futures, less than the 43% of employers with the same concern in 2010. Furthermore, only 30% of employers say they're confident that their employees are prepared for retirement.

To counter employees' perceived apathy toward retirement, employers are adding features and changing plan designs to encourage savings. Plans offering automatic enrollment increased to 57% in 2010, up from just 24% in 2006. Of plans that don't offer automatic enrollment, 36% say they'll probably add it in 2011. Escalation use increased as well; 47% of plans automatically increase employees' contributions, up from 17% in 2006, and 26% say they'll likely add it in 2011. Almost half (49%) offer automatic rebalancing, and one-third are considering adding it this year.

The survey noted that workers who invest in 401(k) plans often have "suboptimal" investing habits, including a poorly diversified portfolio and inappropriate risk. Fifty-six percent of employers offer online investment guidance, and 36% offer online investment advice and managed accounts. Target-date funds are especially popular, offered by 83% of employers. More than one-third of employers offer a Roth 401(k), and 38% of those who do not say they'll add one in 2011. Of the 23% of employers who suspended or reduced matching contributions to retirement accounts in the past two years, 55% say they have already reinstated it; 18% say they will reinstate or increase the match in 2011. Additionally, 11% say they will reinstate or increase the match in 2012.

"Amid the recent market volatility there has been a dramatic difference in outcomes among people who sought out investment assistance versus those who have not," Pamela Hess, director of retirement research at Aon Hewitt, said in a statement. "Employers are seeing the disparity and realize they need to step-up their efforts to ensure workers are saving adequately for retirement and have an investment strategy. At the same time, companies acknowledge the diverse needs of the workforce and understand that they need to offer a variety of investment advisory tools to meet the various needs and savings habits of their employees."

Employers are also focusing on the importance of managing income throughout retirement. Sixty-one percent of employers offer online modeling tools to help employees map their retirement spending. Nineteen percent facilitate annuities either through their own plans or with an outside provider, and 13% plan to add an in-plan retirement income solution in 2011, including managed payout funds, managed accounts with drawdown feature and annuities.

"We expect an increasing number of companies to assess the marketplace and begin adopting new services and products, such as managed payout funds, managed accounts with drawdown feature and in-plan annuities," Hess said.

The costs associated with retirement plans aren't lost on employers, though. Eighty-five percent of companies said they will review their defined-contribution operations in 2011, including expenses and revenue sharing. Forty-eight percent said they will review the total plan cost more often or more thoroughly and 69% said they will increase communication with employees about investments and plan fees.

Three-quarters of pension plan sponsors said they don't anticipate any plan changes in 2011, but more employers are planning to freeze or close defined-benefit plans. Sixteen percent of employers say they will freeze accruals in 2011, and 13% of employers who have offered plans to new hires will stop doing so.

Almost two-thirds (65%) of employers offer prescription drug coverage to retirees 65 and older, and file for the Medicare Part D Retiree Drug Subsidy. In 2013, though, when the health care reform law eliminates the tax-free nature of the Medicare Part D subsidy, just 53% of companies plan to continue that strategy. Seventy percent of employers said they provide some type of post-retirement medical coverage for current or future retirees.

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