Financial Planning, Retirement, Small Business

More Employers Recognize How Important 401(k)s Are

11/11/20 12:00 PM

Last week we mentioned that more businesses are utilizing automatic retirement plan features to nudge participants into better savings rates. Such actions should not be too surprising considering that more employers in recent years have come to understand just how powerful 401(k)s and similar defined contribution plans can be. This is not just in relation to ensuring old-age financial security but also as a tool for the acquisition and retention of talent. For example, a regularly updated Transamerica study found that 77 percent of surveyed employers said that they believe a 401(k) or comparable retirement plan is an important benefit to offer when trying to attract and retain talent, including 34 percent who consider such savings tools to be “very important.”

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A bit of a disconnect, though, still exists because a larger proportion of surveyed workers (81 percent) said that the retirement benefits offered by a prospective employer will be a major factor in their decision-making when job hunting. That gap has encouragingly been shrinking in recent years, but one likely reason it has yet to completely disappear is differing opinions on 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 64 percent of employees were able to report the same level of optimism about their old-age financial outlook. Although the above figures suggest that some employers have yet to fully recognize just how helpful it can be to offer a retirement plan to their workers, the vast majority of firms fortunately already provide their employees with access to this critical benefit. Apart from attracting talent, another possible motivation for sponsoring a 401(k) plan is preventing delayed retirements. Indeed, 69 percent of surveyed employers said that they expect many of their workers to retire, if at all, after the traditional age of 65, well above the 53 percent of surveyed employees who actually expressed such intent.

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And as mentioned earlier 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. Eight in ten surveyed employees, for instance, 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 10 percent, a marked increase from 7 percent in the previous year’s poll. 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 more employers to adopt these and other plan features that can help drive up savings rates among workers, and in turn improve both financial confidence and actual readiness for retirement.

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Sources: Transamerica Center for Retirement Studies

Post author: Charles Couch

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