A survey by Towers Watson shows a vast majority of plan
sponsors have taken steps to boost employee retirement readiness through
improved plan designs and communications. However, not all plan sponsors are
optimizing these strategies. For example, more than two-thirds of companies
(68%) offer automatic enrollment to at least some of their workers, but far
fewer (26%) automatically re-enroll non-contributors or those deferring less
than the default amount. Towers Watson says employers have the opportunity to
engage slow or stagnant savers by using re-enrollment.
Similarly, 54% of companies provide automatic escalation,
but only 28% mandate it. Aside from
automatic enrollment and automatic escalation, the appeal of an employer match
continues to be one of the single largest influencers of the amount and level
of employee savings, according to Towers Watson. The Towers Watson 2014 North
American Defined Contribution Plan Sponsor Survey found 95% of plan sponsors
offer a matching contribution to some or all of their workers. One-third of
employees save at the match threshold and another one-third save more than the
threshold. Knowing that many employees tend to save at the match threshold
provides the opportunity for employers to reshape the match to encourage
increased levels of savings and improved retirement readiness, Towers Watson
says.
Fifty-four percent of companies offer Roth features in their
plans, up from 46% in 2012, according to the survey. Towers Watson suggests
that organizations that want to be proactive about driving up the use of their
Roth provisions should target messages to employees not currently making Roth
contributions.
Similarly, the survey shows a majority (59%) of companies
offer a health savings account (HSA) as part of their account-based health
plans, but only one-third (32%) of eligible employees are taking advantage of
this option, with higher enrollment rates reported by companies with larger
assets. Making the effort to increase employee awareness and understanding of
available HSA accounts can be worthwhile if employers want to ease concerns
about affording health care in retirement, advance the mark on retirement
readiness and offer tax advantages. Also, incentives, such as an employer HSA
contribution, can drive employee savings.
Towers Watson notes that fees affect employees’ ability to
be ready for retirement. When employees are required to pay fees, they are
taken directly from participant account balances, so the higher the fees, the
less employees have in the market. Over time, the impact can be sizable. The
firm says adoption of a fee policy is a good practice and can be one component
of optimal plan management.
Survey results show employers rely heavily on traditional,
passive communication methods and that those methods of communicating with and
educating employees are not working. Only 12% of respondents say employees know
how much to save, and only 20% say employees feel comfortable making investment
decisions.
Towers Watson says plan sponsors should take steps to
analyze their DC plan provisions with results in mind. This will broaden their
considerations to include related health care factors and help them make
decisions based on what is appropriate for their plans, given the unique needs
of their employee demographics. Plan sponsors should also regularly measure the
effectiveness of their DC plans based on how well the plan is helping employees
meet their saving goals. This involves looking beyond participation, deferral
rates and asset allocations, the firm says.
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