As the American retirement landscape continues to shift from defined benefit (DB) plans to defined contribution (DC) plans, the effect has been a transfer of responsibility from employers onto employees. Unfortunately, evidence finds many employees are inept at managing their own retirement and part of the onus is now falling back on employers in the form of them offering employees greater incentives to engage in active retirement planning.
A recent survey conducted by Aon Hewitt (Aon), the global talent, retirement and health solutions business of Aon plc, found employers have been accelerating their actions and loudening their voice in order to foster greater financial security among their employees.
As of late, with the first wave of individuals who experienced the shift from DB to DC plans poised for retirement, there has been the realization that many employees are woefully inefficient when it comes to planning, due to an acute lack of motivation, which, in turn, is based on a deficient level of financial literacy.
While intrinsic issues like a lack of financial literacy will require a substantial effort to foment change, employers are utilizing motivational tactics in the short term in order to jump start healthy financial planning.
Aon surveyed 400 plan sponsors representing 10 million employees in plans that total $500 billion in retirement assets, to gauge their benefits strategies, plan design and administrative practices. The survey found that for the vast majority (77 percent) of employers surveyed, DC programs, namely 401(k) plans, account for the primary source of retirement income for their employees.
The most popular metrics used to measure retirement program success were “facilitates adequate retirement income” and a “high participation rate.”