Retirement, Small Business

Employers Must Not Underestimate The Value Of 401(k)s

9/12/18 8:00 AM

iStock-626627280.jpgYesterday we learned that U.S. workers view 401(k) plans as a “must-have benefit,” and a new report from the Transamerica Center for Retirement Studies suggests that many employers also understand the value of these tax-advantaged savings vehicles. Specifically, 75 percent of surveyed employers said that they believe a 401(k) or similar retirement plan is an important benefit for their workers, including 45 percent that consider such savings tools to be “very important.” A bit of a disconnect, though, still exists because a larger proportion of surveyed workers (88 percent) said that they view defined contribution plans as an important benefit offering, including 62 percent that consider 401(k)s “very important.”

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The wide gap is likely in part explained by differing opinions of retirement readiness. For example, 71 percent of employers said that they are confident their workers will be able to achieve a comfortable and financially secure retirement, while only 62 percent of employees were able to report the same level of optimism about their old-age financial outlook. Further, 81 percent of worker respondents said that they consider the retirement benefits offered by a prospective employer to be a “major factor in their final decision-making when job hunting,” compared to just 72 percent of employers that believe offering a 401(k) or similar plan is crucial for attracting and retaining talent. Although such figures suggest that some employers have yet to recognize the importance of this retirement savings vehicle, the majority of firms still provide their employees with access to this critical benefit.

Many employers have also incorporated automatic enrollment and auto-escalation into their 401(k) plan design to help workers better prepare for retirement, a smart move considering that workers clearly value such plan features. Indeed, 81 percent of surveyed employees said that they find the idea of being automatically enrolled in a 401(k) or similar retirement plan to be appealing, and the median respondent reported that they would be comfortable with a starting contribution rate of 7 percent. Moreover, three-quarters of surveyed workers said that they would be likely to take advantage of an automatic escalation feature that would annually raise their contributions by one percent of their salary. Such responses should encourage employers to adopt these and other plan features that can help drive up savings rates among workers.

 


 

Sources: Transamerica Center for Retirement Studies

Post author: Charles Couch