A new study from BlackRock suggests that there is a big gap between what employers (plan sponsors) believe their employees (participants) know about saving and investing, and what workers actually know. Specifically, 64 percent of surveyed plan sponsors said that they feel participants generally understand how much money will need to be set aside to ensure a comfortable and financially secure retirement but only 37 percent of surveyed participants agreed. Two-thirds of plan sponsors said that they believe workers have a firm grasp of available investment and retirement options (67 percent) but only 43 percent of surveyed participants reported actually having such a level of understanding. Unsurprisingly, sponsors were found to greatly overestimate participants’ level of confidence regarding their current savings rate and ability to retire on time (59 percent vs. 28 percent and 59 percent vs. 35 percent, respectively).
Despite the apparent disconnect, many employers are already taking steps to improve their workers’ overall level of retirement preparedness. For example, roughly a quarter of surveyed plan sponsors said that they have incorporated automatic enrollment (26 percent), made auto-escalation a default feature (24 percent), or at the very least included auto-escalation as an opt-in feature (23 percent). More sponsors have likely started using such automatic tools because two out of three employer respondents said that they “recognize that their participants do not want to have to think a lot about retirement savings.” Moreover, 24 percent of surveyed sponsors said that they have added a company contribution match, 19 percent have raised their default contribution rate, and 16 percent have made catch-up contributions automatic. A quarter of employer respondents also said that they are already using reenrollment initiatives to help “reach employees who never signed up for a plan or to realign investments for longtime participants,” and another 29 percent are considering doing so in the next year.
Sources: Squared Away, Boston College, BlackRockPost author: Charles Couch