29 April 2017

Start Saving More, Or We’ll Do It for You

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Bosses are turning to a new way of convincing employees to save more: make them do it. Companies from Apache Corp. to Google Inc. to Credit Suisse Group AG have boosted the percentage of worker paychecks automatically diverted to 401(k) plans well above the long-held standard of 3%. Some are setting aside as much as 10% of their workers’ money or automatically increasing the amounts by 1% a year unless employees opt out. But not all are matching the increased savings with company contributions.

The moves are the latest attempt by companies to transfer the burden of retirement costs to workers. Millions of Americans aren’t putting enough money aside, despite reforms designed to bulk up nest eggs and encourage employees to sock away more. There are incentives for companies to urge more-aggressive savings. They want to ensure they can make room for younger employees and aren't left with an aging workforce that doesn’t have enough money “to retire and move on,” said Douglas Fisher, Fidelity Investments’ head of policy development on workplace retirement.

Houston oil producer Apache was among the companies to test out higher rates. It boosted its automatic employee contribution to 8% in 2012 as it tried to attract new workers. Its 401(k) costs have increased by between $4 million and $5 million annually as Apache matched the full amount for employees, executives say, but roughly 97% of its employees now participate.

About 40% of working households with those aged between 25 and 64 have no retirement savings, according to a study released last spring by the nonprofit National Institute on Retirement Security. For those that do, the median balance for households with workers approaching retirement age is $104,000, a rate that experts say is one-fifth of an ideal balance, based on a retirement age of 67.

Many employers in recent decades shed costly retirement obligations by eliminating traditional pensions that guarantee a set payout for life and replacing them with tax-deferred 401(k) plans where employees are largely responsible for saving and investment choices.

Millions of new savers joined 401(k) plans but companies enrolled most participants at a 3% savings rate, partly because of guidance from the Internal Revenue Service in 1998. Companies were long reluctant to take a bigger chunk out of paychecks for fear of stirring employees’ ire or taking on higher costs if they matched the larger contributions.

Companies softened that stance as they recovered from the 2008 financial crisis and looked to attract new workers. Large money managers also lobbied employers to be more aggressive. The number of plans with contribution rates above the old default rate climbed to 40% for the first time in 2013, according to the latest data available from the Plan Sponsor Council of America, compared with 23% in 2006. More are currently discussing moves higher, according to industry consultants and money managers.

Google began boosting its automatic savings rate in its 401(k) plan from 4% in 2008 to 6% in 2010, according to retirement researcher BrightScope Inc.. It now enrolls employees at 10%. John Casey, Google’s director of international benefits, said in a statement that the company wants “Googlers saving for the long-term so they can have the retirements they want.”

Companies that have bumped up the default savings rate say they’ve been surprised by the lack of pushback from employees, who are free to lower their savings rate or opt out of the automatic increases.

Click here to access the full article on The Wall Street Journal.

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