Retirement plan sponsors don’t believe their employees will have enough to retire when they reach their early to mid-60s, and are worried about what that means for their firms, according to a survey by SEI. Furthermore, over half of sponsors surveyed said defined contribution plans weren’t designed to be a retiree’s primary source of income, so the overwhelming shift toward those types of plans requires changes to how they are designed.
The report, “Do DC Plans Need to Be Redesigned?” was released on Thursday, and is the first of a three-part series that will be published over the first half of 2016. SEI surveyed over 230 executives, about 20% of which are SEI clients. Plan sizes ranged from $25 million to over $5 billion.
Almost two-thirds of respondents said their DC plan will likely be workers’ primary source of income in retirement. Even among sponsors that offer both a DB and a DC plan (64% of sponsors, although only a quarter of those have active plans), over half believe the DC plan will be their workers’ primary source of retirement income.
However, 84% weren’t confident the plan could meet their workers’ retirement needs when they were ready to stop working.
Sponsors’ biggest concerns about the impact older workers would have on their firm were regarding health care. Over three-quarters said the increased health care costs of older employees who can’t afford to stop working would affect their firm. Those workers will also likely have higher salaries, a concern shared by 63% of sponsors.
Sponsors were also concerned about declining performance, among both older workers who wanted to retire but couldn’t afford it and younger workers who were frustrated by a lack of upward mobility within the firm. Sixty-four percent of plan sponsors were worried about losing those younger employees.
Recommendations for Redesign
Plan sponsors rated the quality of investments offered to participants as their top priority, SEI found, followed by performance, costs, simplicity for participants and protection from litigation.