Defined contribution plans are now considered U.S. workers’ primary retirement savings vehicle, but concerns are mounting that workers are not saving enough.
A new survey by Willis Towers Watson, an advisory, broking and solutions company, finds that employers are striving to counter this trend by enhancing their DC plans, for one thing by adding automatic features to their plans.
Seventy-three percent of employers now automatically enroll new participants, compared with 68% in 2014 and 52% in 2009, according to the survey findings.
In addition, 60% of respondents provide auto-escalation features, which can significantly improve an employee’s retirement readiness, up from 54% in 2014.
“Helping employees with their long-term financial security has emerged as a very high priority for employers,” Tammy Hughes, senior retirement consultant at Willis Towers Watson, said in a statement.
“The enhancements they are making should go a long way toward encouraging greater participant savings as well as wiser investment decisions.”
The survey was conducted in November among 349 large and midsize U.S. companies that sponsor a defined contribution retirement plan.
Employers are making other enhancements, according to the survey. Seven in 10 respondents said they offered Roth features within their 401(k) plan, up from 54% in 2014 and 46% in 2012.
A report in October supported this finding. It showed that a growing number of large employer DC plans had added auto-enrollment, auto-escalation of contributions and Roth options as enhancements to their plans.
A quarter of employers in the Willis Towers Watson survey said they had raised their plan contributions over the past five years. Sixty percent of those that chipped in more did so by increasing the employer match, 51% by encouraging employee savings and engagement and 44% by offsetting benefit changes in their defined benefit program.
A recent report said that the funded ratio of the 100 biggest public defined benefit pension plans in the U.S. rose in the fourth quarter.
Willis Towers Watson reported that 42% of employers surveyed had streamlined investment options they offered to plan participants over the past three years, and another 41% planned to do so by 2020.
Another enhancement to DC plans is use of target-date funds as the qualified default investment alternative, reported by 93% of respondents, compared with 86% in 2014 and just 64% in 2009.
As well, 80% of employers now offer health saving accounts, and 12% were considering adding them in the near future. HSAs’ tax-free contributions, investment earnings and distributions have made them a popular retirement savings vehicle, the report said.
Employers are also increasing fee transparency and expanding financial well-being communications, according to the survey.
Forty-one percent reported that they charge a fixed-dollar amount per participant for recordkeeping fees, up from 32% in 2014.
Seventy-eight percent said they expected to make a bigger effort to educate employees on retirement planning issues, with 64% of this group planning to offer guidance on how to draw down funds after leaving work.
The survey found that a big opportunity remained for plan sponsors to measure the success of their programs based on outcomes and to regularly conduct this assessment.
Just 35% of respondents reported measuring participants’ retirement readiness annually. Moreover, 88% said they measured only basic plan statistics, such as participation rate, account balance and contribution rate.
In addition, 83% of investment committees at the biggest plan sponsors said their top priority was to improve retirement readiness and associated workforce risks, yet just 17% said they spent time at meetings addressing retirement readiness.
According to Kerry Bandow, a senior consultant at Willis Towers Watson, “sponsors can evaluate the efficiency of their plan operations and investment management. If needed, they can make changes to adopt more efficient models, such as delegating investment decisions to an internal subcommittee, which could allow time to focus on measuring plan outcomes.”
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