The majority of large and mid-size U.S. employers that sponsor DC plans say retirement readiness has become a major issue for their employees.
A Towers Watson survey finds that a vast majority of plan sponsors have taken steps to meet this growing challenge by boosting their savings and investment education programs, and continuing to embrace automatic features and target-date funds (TDFs) for their DC plans.
However, concerns about retirement readiness are prevalent.
Read: 2014 CAP Member Survey: Financial preparedness for retirement
Seventy-eight percent of employers say retirement readiness has become a top issue for their employees. Additionally, 82% say retirement security will become a more important issue for employees in the next three years.
Employers understand that more education is necessary. A mere 12% of respondents say employees know how much they need for a secure retirement, while only 20% believe their employees feel comfortable making investment decisions. More than half (53%) of the respondents are also concerned about older workers delaying retirement.
“In a world where DC plans are becoming the primary company-sponsored retirement program, retirement readiness has become a major concern for employers. Unfortunately, most employers have not yet moved the needle in preparing their workers for a financially secure retirement,” says Robyn Credico, DC practice leader, North America, at Towers Watson. “If employers are to make progress, they must also rely heavily on education and communication so their employees know their options and make informed savings decisions.”
Read: DC plan members lack retirement confidence
The most common plan features include simple but diverse investment lineups, and auto-enrollment and deferral features with flexibility for pre-tax and after-tax contributions.
Yet participants do not always take advantage of the solutions that would optimize their retirement readiness. More than half (54%) of the respondents offer an automatic increase feature for participants’ contributions annually, but only 28% mandate it.
In support of more effective solutions, sponsors continue to simplify the investment offerings to align with participant needs. Two-thirds (66%) offer between 10 and 19 investment options, and 86% of respondents use TDFs as their default option.
Read: The future of target-date funds
The survey notes that the majority (61%) of employers continue to focus their retirement education programs on traditional, passive methods, including account statements, newsletters, group meetings and online webcasts. Less than 10% use mobile apps extensively or have tried gamification, which uses game design to motivate employees to achieve savings goals.
“With concern over retirement readiness at such high levels, many employers face the risk of having older workers delay retirement,” Credico explains. “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.”