Companies offering 401(k) plans must raise employee savings rates, including a “creative rethinking” of corporate matches; improve designs for target-date funds; and provide lifetime income options within investment menus, said Chip Castille, head of BlackRock’s U.S. and Canada defined contribution business.
Mr. Castille was among several BlackRock executives on Tuesday who discussed results of the company’s second annual survey of 401(k) plan participant attitudes and behavior.
The survey results show 65% of participants have “some level of confidence in their 401(k) plan, compared with 53% in 2009, and 55% said their workplace savings plan has become more important since the economic crisis, compared with 46% last year. However, Mr. Castille added that participants still have difficulty in preparing “how to turn retirement savings into retirement income.”
According to the survey, 57% of 401(k) participants said they would prefer a steady stream of income vs. only 9% who wanted a lump sum. The rest wanted “a little of both.” To illustrate why lump-sum payments can create problems, the survey noted that only 18% of respondents said they had experience in managing $100,000 or more; other respondents had little or no experience with such a large sum.
The random survey of 1,000 participants revealed a gap between savings beliefs and behavior. For example, 72% know their rate of saving, but 58% say they are actually saving at or above the rate that they consider a “rule of thumb” for adequate retirement income.
The survey also found that an employer’s matching contribution was viewed by participants as “the most powerful influence on their savings,” with 45% of respondents calling the match “very influential.” The next biggest, mentioned by 33%, was a plan’s auto-escalation feature, the survey said.
The survey was conducted via the Internet by the Boston Research Group in March among 401(k) participants actively contributing to their retirement plans. The participants weren’t necessarily enrolled in plans that are BlackRock clients.