Last month we learned that 401(k) participants believe their defined contribution (DC) plans are helping them better prepare for a comfortable and financially secure retirement. As useful as these tax-advantaged savings vehicles can be, though, many employers are concerned that workers are not adequately utilizing their 401(k) plans.
For example, a study by SEI found that 88 percent of surveyed plan sponsors said that participants must contribute more to their DC plans, not surprising since 84 percent of respondents also expressed doubts that participants will be able to afford to retire on time (ages 62-65). More importantly, another 88 percent of surveyed sponsors said they fear that workers delaying retirement could adversely affect their business. How so? Sixty-four percent of employer respondents, for instance, said that they believe workers not being able to retire at a traditional age would hurt their organization’s level of young employee turnover.
Further, 77 percent of sponsors reported that they worry delayed retirements could raise firm-wide healthcare costs, and 63 percent said that having to maintain a larger proportion of older (higher-compensated) workers could prove to be a substantial expense for their company. Forty-three percent of surveyed employers also voiced concerns that a delayed retirement trend could hurt productivity because younger workers might be disgruntled from the absence of upward mobility, and 44 percent of sponsors acknowledged that older employees would probably lack motivation if they prefer to already be retired at this stage in their life.
When asked about what changes need to be made in order to increase the likelihood of employees having the necessary savings to retire on time, the most frequently cited responses behind boosting 401(k) plan contributions included educating participants about investing, and the importance of having additional savings on top of what is being contributed to their DC plans. More than a fifth (21 percent) of surveyed sponsors also said that they believe incorporating a re-enrollment process could increase the likelihood of their employees having the necessary savings to retire on time, and more than a third (36 percent) said it is “likely or somewhat likely” they will conduct a re-enrollment in the next twelve months.
Sources: SEI Investments CompanyPost author: Charles Couch