Increasing fears that Americans won’t be able to afford to retire are prompting employers to enhance their defined contribution plans, with automatic features among those being added.
In fact, 73 percent now automatically enroll new participants—a percentage that’s been rising steadily, from 52 percent in 2009 and 68 percent in 2014. Still, 47 percent of those who haven’t added auto-enrollment cite cost as the chief reason not to do so. They also hesitate to add reenrollment, with 80 percent only making the effort to auto-enroll at the time the employee is hired.
In addition, 60 percent are now offering an auto-escalation feature; in 2014, 54 percent did so. Another big boost in DC plan features is the addition of Roth elements to 401(k) plans, with 70 percent of sponsors adding that to the plans they provide.
That’s up from 54 percent in 2014 and 46 percent in 2012. Just a quarter of employers have increased their plan contributions over the past five years. Among those doing so, 60 percent raised the employer match to do it; 51 percent did so by encouraging employee savings and employee engagement; and 44 percent offset benefit changes in their defined benefit program.
Meanwhile, among employers who did increase plan contributions, 66 percent didn’t increase the employer match at all and 7 percent actually reduced it.
Other changes employers have been making include a cut in the number of investment options by 42 percent of employers over the past three years, with another 41 percent planning to do so by 2020, and the rise of target-date funds as the go-to qualified diversified investment alternative, with 93 percent using TDFs as QDIAs since 2014’s 86 percent and 2009’s 64 percent.
Health savings accounts are also on the rise, with 80 percent of employers offering them and 12 percent planning or considering adding them by next year.
They’re also paying more attention to fees charged on retirement accounts, with 41 percent now being charged a fixed-dollar amount per participant for recordkeeping fees; that’s up from 32 percent in 2014.
And 78 percent of employers plan to provide additional education on retirement planning issues, including such topics as when they’ll be able to retire; where they should be saving to do so among available choices including Roths, 401(k)s, HSAs and other options; how much they need to save; where and how to invest; and how to withdraw money from their retirement accounts once they’ve actually retired.
But despite these improvements, employers still have a way to go in other areas—such as evaluating how well their plans are actually doing at improving workers’ retirement readiness. Just 35 percent of respondents even measure the retirement readiness of their participants annually, and the vast majority (88 percent) only measure basic plan statistics, such as participation rate, account balance and contribution rate.
Additionally, 83 percent of investment committees at the largest plan sponsors say their top priority is to improve retirement readiness and associated workforce risks, yet only 17 percent spend time at meetings on retirement readiness.