Why Are Employers Withholding These Critical Features in 401(k) Plans?

By Hal M. Bundrick

NEW YORK ( MainStreet) -- Workers in other countries have better retirement plans and benefit from automatic retirement savings features that most Americans simply can't access in their 401(k) plans. But U.S. employers say the reason they don't offer automatic enrollment (27%) or automatic contribution escalation (30%) is because of a concern that employees wouldn't approve of these features, according to J.P. Morgan research.

"Employers see the need for change, but most need help in determining the best approach for their plan," said Catherine Peterson, Director of Retirement Insights at J.P. Morgan Asset Management. "The new generation of 401(k) plan components - from design to investments, communications and administration - is readily available and simply needs to be prioritized, coordinated and managed toward plan objectives and goals. There is a second generation 401(k) plan emerging and it shouldn't be reserved for large plan sponsors only." Deploying these advanced options for the benefit of employees would seem to be a priority for employers, 75% of whom say "increasing financial security" and "helping ensure employees have a financially secure retirement" is highly important. And 60% of plan sponsors say they have a somewhat high to very high sense of responsibility for the "overall financial wellness of employees."

And yet the automatic savings features remain unavailable to so many participants who are depending on their 401(k) plan to be an effective retirement savings tool.

Does the fault lie with advisors? Only 14% of plan sponsors say their advisor or consultant proactively suggests new ideas and shares best practices for evolving their plan.

But the responsibility is held by the plan sponsor and participants are counting on their employer to do what's best. Two thirds of respondents had a high level of trust in their employers' ability to select an appropriate retirement plan provider and set investment options. Only 20% were opposed to automatic savings features being offered in their 401(k) plans.

Still many plan sponsors continue to resist. The Plan Sponsor Council of America says that less than half of employers have adopted auto escalation and auto enrollment options.

"The implementation of auto features is absolutely critical to helping participants achieve optimal outcomes," says Peterson. "Industry research shows that, once enrolled in a plan with auto enrollment and auto escalation, less than 10% of participants ever opt out. Imagine the impact these auto features can have on the saving habits of those employees. Providing more Americans with the experience and satisfaction of a secure retirement calls for the continued evolution of 401(k) plans with all parties contributing - participants, employers, advisors, plan providers and policymakers."

--Written by Hal M. Bundrick for MainStreet

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