Many U.S. employers believe their employees lack retirement readiness, said a new report from Towers Watson.
Out of the 457 defined contribution plan executives surveyed, 78% said retirement readiness is an important issue for their employees. However, only 12% believe their employees know how much they need to save and only 20% believe employees feel comfortable making investment decisions.
Plan executives’ movement toward simplified investment lineups and automatic enrollment has improved the defined contribution landscape somewhat, said Robyn Credico, defined contribution practice leader, North America, at Towers Watson. Forty-three percent of respondents simplified their investment offerings in the past five years; 68% now offer automatic enrollment to at least some of their employees, up from 57% in 2010; and 86% of respondents reported using target-date funds as their default options.
However, more change is needed to effectively prepare people for retirement, Ms. Credico said. Fifty-four percent of plan executives provide automatic escalation, but only 28% require it, offering an opt-out feature. Roth provisions are also underused by employees. “A lot of the people who are lower paid would really benefit from having Roth contributions because when those contributions come out, they don’t count as income for Social Security,” Ms. Credico said.
The survey also found a growing interest in outsourced investment services; an increase in the number of plan executives requiring participants to pay direct record-keeping fees; and a decline in the number of companies considering adding lifetime income options, which Ms. Credico said was surprising. “Even though (plan executives) believe it’s important to offer employees some type of lifetime income option, we’ve hardly seen any improvement in the number of (companies) offering them,” Ms. Credico said.
To help employees better prepare for retirement, 84% of plan executives said they will increase their education and communication efforts.
The survey was conducted between June and July and includes responses from 457 U.S. plan executives that have $10 million or more in assets.