Many employees are waiting for an economic recovery before moving forward with retirement, and employers are taking the same attitude with retirement program changes and risk issues, according to Aon Consulting.
The survey concerned 1,313 employers nationwide in its 2009 Benefits & Talent Survey, and found that more than 90 percent are not changing their retirement programs, either in terms of benefits or management. Along those lines, 87 percent of respondents said employees are delaying retirement due to economic conditions. What’s more, a third of employers have less than 70 percent of their employees enrolled in their defined contribution (DC) plans, with the majority (67 percent) saying they believe workers are not enrolled because they can’t afford it.
Meanwhile, 38 percent of these employers believe employees have little knowledge of the funds needed for retirement and 52 percent said employees have only some idea of what’s needed to retire with enough funds. Just 8 percent believe their employees have a strong understanding of the funds needed in retirement. Workers wanting to learn more about retirement savings have turned to their employers for additional information. In fact, 64 percent of responding employers said there was an increase in investment-related questions in 2008 vs. 2007, but only about a third of these organizations increased their communications around the importance of saving for retirement last year, while 62 percent said their communication remained unchanged from the previous year.
Amol Mhatre, senior vice president responsible for retirement innovation said: “The ‘wait-and-see’ attitude is not surprising”. “We may continue to see dramatic economic swings, as interdependencies grow in the global economy, and retirement programs and savings can’t stop with every downturn. Retirement security for working Americans will soon become a challenge for policy makers and employers, along the lines of health care reform. With a trend toward individual responsibility, increased mobility, complex investment choices, rising cost of health care and improved life expectancy, employers may have to do more to help workers understand and plan for their retirement needs.”
In addition to not changing their retirement communications strategy, 92 percent of organizations are not changing their pension/defined benefit (DB) programs in the near future, citing the high cost of company-required contributions (71 percent), volatility (47 percent) and administrative costs (35 percent) as the main reasons. Employers also are not changing the risk profile of their pension plans, as two-thirds of these organizations have not made changes to their pension investments during the past two years and do not intend to do so in the next two years.
The survey also revealed that only 45 percent of employers offer a DB plan to their employees. That said, 41 percent of employers have frozen their pension plans to new entrants, 25 percent have frozen their plans entirely and do not have a strategy regarding plan termination, and 20 percent have frozen their plans and intend to terminate the plan once funding allows.
Kemp Ross, senior vice president and head of Aon Investment Consulting said:”We do not subscribe to the ‘wait-and-see’ attitude for employers with frozen pension plans,”. “Employers have no real upside for taking on the financial risks and costs of frozen pension plans, so organizations need to establish an exit strategy for such plans, which can be executed with a balanced approach to funding and investments during the next few years, as financial markets recover.”
Trends in 401k Matches/Auto Enrollment
This survey also revealed that 56 percent of respondents offer matching contributions on DC plans. Of those, approximately half provide a higher than 3 percent match. Additionally, 41 percent of employers have an automatic enrollment plan, with 53 percent implementing a default at 3 percent, and nearly all (99 percent) planning to keep their default percentage the same this year.
“While most of our survey respondents did not cite changes to matching contributions, some financially constrained companies did suspend or modify their 401k match in response to the economic downturn,” said Mhatre. “Companies should take this opportunity to look strategically at their retirement programs in the context of total reward strategies.
“Defined contribution plans are increasingly the primary retirement vehicles for American workers. This will surely change how workers and policy makers view companies’ fiduciary responsibilities. We had a third of survey respondents suggest that their fiduciary risks have increased since only a year ago. It is surprising that most companies have not taken actions to mitigate such risks by taking measures such as fiduciary training and review of their governance processes.”
