NEW YORK (MainStreet) — Your employer is doing everything it can to convince, cajole and pester you into saving for life after work. Your workplace may offer a 401(k) plan, match your contributions up to a certain limit and host educational meetings and seminars. All in an effort to encourage your retirement saving efforts. Why should your employer even care if you save for retirement or not?
There are two main reasons: 1) Employees say it's a major issue for them – and to attract a strong workforce in competitive markets, it's what employers need to do; and 2) If you can't afford to retire, you may hang on to a job long after your motivation has called it a day.
According to a new Towers Watson survey, 78% of the 457 U.S. employers surveyed say retirement readiness has become a top issue for their employees. Additionally, 82% say retirement security will become an even more important issue for employees in the next three years. And more than half of the retirement plan sponsors surveyed (53%) said they were also concerned about older workers delaying retirement.
“With concern over retirement readiness at such high levels, many employers face the risk of having older workers delay retirement," said Robyn Credico, defined contribution practice leader at Towers Watson. "These delayed retirements can weaken productivity, since employees who stay on the job because they cannot afford to retire are more likely to be less engaged and productive than other workers."
So employers tack on additional benefits and features to their company-sponsored retirement plans in an effort to boost participation. One of the latest innovations, just approved by the Treasury Department and the IRS, is the use of annuities in 401(k) plans. While usually pitched as a tax-deferred investment all of its own, annuities are being touted as a means to generate lifetime income streams as an option for retirement plan distributions. Participants will be able to place a portion, or all, of their savings into the annuity investments -- in effect, making their 401(k) plan something of a personal pension. It's a new idea that hasn't had much time to catch on with plan sponsors, or participants, yet.
"While lifetime income options are intended to improve retirement readiness, these new solutions are immature and early adopters face opportunities and challenges," the Towers Watson report says. "Several relevant factors in the market landscape, solution types and regulations have yet to be determined. The number of companies offering lifetime income options remains fairly low, at just 12%. While that’s double the number in 2012, the percentage of companies considering adding lifetime income offerings dropped considerably between 2012 and today. Low utilization rates are one likely driver of the drop in interest. When offered to retiring participants, lifetime income distribution is chosen by less than 5%."
The most-common features found in today's 401(k) plans are diverse investment lineups, automated enrollment and automatic contribution increases. Still, many participants don't take advantage of these retirement savings kick starters.
More than half (54%) of the employers surveyed offer an option to make Roth contributions, but less than 11% of their employees take advantage of the tax-free savings. Virtually all of the companies polled (99%) offer health savings accounts (HSAs) too, yet few employees avail themselves of that benefit either.
--Hal M. Bundrick is a Certified Financial Planner and contributor to MainStreet. Follow him on Twitter: @HalMBundrick