When we think about retiring in the not-too-distant future, many of us get nervous, wondering whether we’ll have enough saved to maintain our lifestyle throughout the years.
It turns out that our employers are worried about us, too. A new survey by consulting firm Towers Watson finds that most employers don’t believe their workers make informed decisions about their retirement savings. They say their 401(k) plans are ‘”misunderstood and underutilized” by employees.
Employees are not awash in confidence, either. In a 2011 Retirement Attitudes Survey by Towers Watson, only 42 percent of workers with a 401(k) plan say they were confident that their funds would last through 25 years of retirement.
Defined contribution plans like 401(k)s are increasingly the backbone of workers’ retirement plans, as fewer employers provide guaranteed defined benefit pensions. Consequently, workers are on the hook for squirreling away enough in savings, making wise investments and timing their retirement well (such as avoiding deep recessions if that’s remotely possible).
Sure, that’s easier said than done. Workers’ earnings have been flat for years while prices have risen, making saving even more challenging. Investments in 401(k)s are tied to a volatile, unpredictable market, so choosing funds that grow steadily, even in a down market, is daunting.
But let’s get back to the latest survey, which asked some 371 plan sponsors with more than 1,000 employees about retirement readiness and other issues. The survey finds that only one in four employers think their workers have realistic expectations about what a defined contribution plan can provide in retirement. Nearly half (48 percent) say they expect their older workers to delay retirement.
Not many employers, only 6 percent, say they provide an annuity option in workers’ 401(k) plans. That option is relatively new and is widely seen as an important benefit because it would provide a steady stream of guaranteed income in retirement for workers who choose to annuitize some portion of their funds.
There was some interesting news, too, about how companies were contributing to their workers’ 401(k)s. One in four employers say they now make non-matching contributions and about one in seven say they’ve increased their matching contribution. Of the employers that cut or suspended their plans amid the financial crisis, most (79 percent) say they’ve reinstated it entirely or in part.
Meanwhile, workers should have gotten by now, or will get soon, the disclosures on the fees they are paying for the management of their 401(k)s. Plan sponsors were required to begin sending these disclosures in workers’ quarterly statements no later than the third quarter of this year, thanks to new government rules.
Employers also reported that a growing number of workers were participating in retirement plans, due in part to the automatic enrollment of new workers.
photo credit: Richard Step via flickr.com