Despite successful efforts to increase employee participation and deferral rates in 401(k) and other defined contribution (DC) plans, a vast majority of U.S. employers lack confidence in the retirement readiness of their employees, according to a new survey by global professional services company Towers Watson (NYSE, NASDAQ: TW).
The Towers Watson survey of 371 U.S. employers that offer a 401(k) plan as their primary DC retirement plan found that more than half of respondents (56%) reported employee participation levels at or above 80% this year, compared to 50% two years ago. The higher participation rates are primarily the result of employers using automatic enrollment, with nearly two in three respondents (65%) now using this feature, compared to 51% in 2009. To encourage adequate participant savings rates, 71% of those that use auto-enrollment also use automatic contribution escalation, which allows a gradual increase in contribution levels over a certain period of time. Employers are also becoming more transparent about fees, with more companies now charging participants direct, equal-dollar recordkeeping fees. One-third of respondents now pay recordkeeping fees through revenue sharing, which represents a decline from 42% in 2009.
Even with these efforts, the survey reveals significant employer concern that their DC plans are both underutilized and misunderstood by their employees. Only one in five respondents (22%) believe employees generally make informed decisions about their retirement savings, and only 26% believe their employees have realistic expectations about what DC plans can provide. Nearly one-half of respondents (48%) expect a greater number of older workers will ultimately delay retirement.
“Plan sponsor confidence is severely lacking in retirement readiness,” said Robyn Credico, a senior retirement consultant at Towers Watson. “While employers continue to offer various communication vehicles, education and advice tools, and have made recent strides by automating retirement plan savings features and offering investment choices that help employees diversify their savings, it appears that the intended impacts of these moves have fallen short of their goals.”