Family caregivers pay hefty price to care for loved ones
An exciting article about family caregivers from Benefits Pro by Marlene Y. Satter
It’s not just the late hours, the extra work or the emotional strain. Family caregivers are paying a big price to take care of loved ones who can’t adequately care for themselves, and part of the cost could be their retirement.
According to a new report from AARP, 78 percent of caregivers are incurring out-of-pocket costs as a result of caregiving. The 2016 report “Family Caregivers Cost Survey: What They Spend and What They Sacrifice” estimates that on average, family caregivers are spending roughly $7,000 per year ($6,954) on out-of-pocket costs related to caregiving in 2016.
If that statistic isn’t depressing enough, the report’s financial strain measure, consisting of annual caregiver expense divided by their annual income, shows that caregivers are spending, on average, nearly 20 percent of their income on caregiving activities.
Considering that, it should come as no surprise that many family caregivers have to cut back on other spending, “which can undermine the family caregiver’s future financial security,” the study said.
Sixteen percent have reduced contributions to their retirement savings, and approximately half have cut back on leisure spending (45 percent said they’ve cut down on eating out or vacations because of caregiving expenses).
So where and how are they spending this money?
Household expenses account for the lion’s share of family caregivers’ out-of-pocket spending, eating up 41 percent of it.
This can encompass everything from rent/mortgage payments to home modifications and other household expenses.
Medical expenses make up the second largest chunk, eating up 25 percent of caregivers’ spending on such items as assisted living or skilled nursing facilities, insurance costs and other medical expenses.
And while long-distance caregivers (defined as family caregivers living more than one hour from the care recipient) paid the highest out-of-pocket costs ($11,923), it was no bargain for caregivers living with their care recipient, who also incurred high costs ($8,616).
And if the recipient is older (more than 50 years old) or has dementia, their caregiver will be paying more, too: costs of $7,064 for a recipient older than 50, compared with $5,721 for one younger than the half-century mark, and costs of $10,697 for a recipient with dementia, compared with costs of $5,758 for adults who do not have dementia.
See the original article Here.
Source:
Satter, M. (2016 November 14). Family caregivers pay hefty price to care for loved ones [Web blog post]. Retrieved from address https://www.benefitspro.com/2016/11/14/family-caregivers-pay-hefty-price-to-care-for-love?ref=hp-top-stories
5 ways to salvage retirement
It’s a scary season, what with Halloween just around the corner, and some of the fears looming large in people’s minds focus on retirement. So it’s probably pretty appropriate that we tackle some of those fears head on, so to speak.
The Huffington Post addressed just that topic, pointing out five things people who are not yet retired can do to ward off at least some of the effects of what experts predict: that people’s standard of living will fall during retirement, thanks to low savings levels and poor planning for the last stages of life.
We scouted around the web to find some additional data on why, and how, retirement is expected to fall so short of people’s anticipation, and what they might be able to do to forestall that drop in expectations. Here’s what we found:
5. Figure out where you’ll live
A person’s home might be his castle, but whether it will be a fortress surrounded by a moat or a gracious palace can depend a lot on that old real estate saw, location, location, location.
The cost of your retirement home, how much you’ll pay in property taxes, the cost of living in the area and many other factors determine whether that retirement Shangri-La will be a cozy cottage for two in a university town, a bungalow on the beach or a penthouse apartment overlooking sparkling city lights, with museums, restaurants and theaters within an easy stroll — maybe even in another country altogether.
But there are other intangibles to consider, too — such as whether you’ll be so forlorn at leaving family behind that you’ll either be miserable in situ or spend half your retirement budget traveling back to see the grandkids. And how good the health care facilities are in your new location — that can make a big difference not just in your budget, but maybe even in how long you survive to enjoy those golden years. Not to mention the crime rate and whether you’ll have a social support system in place.
Check out any prospective homes thoroughly before you make the big move, and make sure they have what you need to help you thrive during retirement.
4. Start saving more
While economizing might not be — or feel — glamorous, watching that 401(k) or IRA balance climb can certainly make you feel like a million bucks. Keep that in mind as you’re browsing for a new set of golf clubs or that perfect dress for a special evening out — especially if you don’t plan on playing golf in retirement or dining out on the town, because spending now could cost you big-time later on.
According to AARP data, 3 out of 5 — that’s more than half, folks — of the households headed by someone 65 years old or older have zero money in retirement accounts. That’s zero, as in zip, nada, nothing. How far into retirement will that get you? Into a job, most likely, working during the time that’s supposed to be your well-earned rest after a lifetime of supporting yourself and your family — if you can get one, that is.
Look for ways to cut your spending so that you can turn that money right around and put it to work for you in retirement. Whether it’s making coffee and lunches at home to bring to work or switching nights out with friends at a restaurant to entertaining at home, find ways to sock more away for the future — your future — when you’ll be glad you did.
3. Learn to live on a budget
You may already be doing this, but if you’re not, it’s probably time to start. While you may be planning to work in retirement, the job market may have other ideas — and if you’re dependent on a combination of Social Security and 401(k) or IRA money, that will limit your options. For one thing, seniors have to deal with a job market that’s prejudiced against them — and that’s stacked against them in other ways, too.
Not only that, but depending on who wins the election, your Social Security benefit may not be as predictable as you’d counted on — and then there’s the question of cost-of-living increases. After no increase at all for 2016, seniors will see a paltry average increase of $3.92, according to CNN. That’s a skinny 0.3 percent increase — hardly enough to notice.
And considering how health care costs are rising, women in particular need to be wary of stepping outside of a budget’s constraints; a Nationwide Retirement Institute study found that women could end up spending 70 percent of their Social Security benefits just paying for health care. Considering that women not only overwhelmingly (80 percent!) claim Social Security benefits early, thus locking in a lower benefit rate for their lifetimes, they depend on it to pay for 56 percent of their expenses in retirement.
That said, get used to living on less — you’re going to be doing so for a long, long time.
2. Prepare your home for the long run
If you’re planning on staying put in the house you’re currently living in, make sure it’s prepared for potential changes in your health and/or mobility — particularly if you don’t have coverage for nursing home care. While many people believe that Medicare will pay for a nursing home, should they become disabled, that’s not the case unless their assets are pretty much exhausted. Of course, that won’t take long when paying for the cost of care at a nursing facility.
In addition to stairs, reachable cabinets and accessible bathrooms, there’s the question of how affordable your home is. Can you refinance your mortgage at a cheaper rate? Rent out a room? Pay the property taxes? Maybe you should consider downsizing to a more affordable house, perhaps in the same neighborhood, if your network of friends and family is local. That can save you not just on taxes, but on heating and cooling bills.
It may not be what you had in mind, so it's smart to start setting realistic expectations of what your future retirement might look like.
1. Lower your expectations
Do you somehow expect that when you retire you’ll be traveling the world, dining at fine restaurants and going to the theater for every new production? Unless you have Warren Buffett’s budget, get real.
Most seniors have to cut back substantially when they leave the workforce. You will likely be no different. It’s easier to deal with that reality if you prepare for it mentally in advance, and realize that you’ll have to plan your excursions carefully and budget for them in advance.
The market was brutal to retirement plans during the Great Recession, and unless you were uncommonly fortunate, the money you saved for retirement throughout your career has not regained all lost ground. That said, depending on what you plan to do during your retirement years, you may still find it’s the most rewarding time of your life — particularly if those plans don’t depend on money.
See the original article Here.
Source:
Satter, M. Y. (2016 October 24). 5 ways to salvage retirement. [Web blog post]. Retrieved from address https://www.benefitspro.com/2016/10/24/5-ways-to-salvage-retirement?kw=5+ways+to+salvage+retirement&et=editorial&bu=BenefitsPRO&cn=20161025&src=EMC-Email_editorial&pt=Daily&page_all=1
10 Resources to Help Your Employees Prepare for Retirement
Very helpful tips for retirement from the Society for Human Resource Management (SHRM), by Irene Saccoccio.
Social Security wants to help you prepare your employees for a secure, comfortable retirement. Security is the Social Security Administration’s middle name and we want everyone to enjoy the fruits of a lifetime of labor.
We mentioned before that being prepared when you retire can open new avenues of possibilities. Our website has tools and information to help you secure today and tomorrow. When it comes to retirement, we’ve got you covered with 10 tools to help you plan for your retirement, apply for, and then manage your benefits as you go along.
1. Our Retirement Estimator provides estimates based on your actual Social Security earnings record. Plug in different numbers, retirement dates, and scenarios to help you decide the best time for you to retire.
2. Using our Retirement Planner: Plan for Your Retirement can help you find your ideal retirement age, estimate your life expectancy and the amount of your benefits when you retire. You can test future retirement ages and various earning amounts.
3. Read Retirement Planner: Getting Benefits While Working to learn the rules and regulations about work after retirement, how it affects you, and what you should consider.
4. Retirement Benefits provides you with a broad overview of our retirement program. It covers how you earn coverage, how to apply, how benefits are figured, and how to decide when to retire.
5. When to Start Receiving Retirement Benefits takes a look at some factors that can help you make an informed decision about the best time to retire.
6. Your Retirement Benefit: How It Is Figured explains the formula Social Security uses to calculate your benefit amount, describes what factors can affect it, and offers a worksheet to help you estimate your retirement benefits.
7. The Medicare section of our website provides information about the Medicare program and answers general questions on Medicare.
8. Medicare Premiums: Rules for Higher-Income Beneficiaries explains the rules about people with higher incomes. If you have higher income, find out why you will pay an additional premium amount for Medicare Part B and Medicare prescription drug coverage.
9. Your personal my Social Security account is one of the most powerful tools available to secure your retirement. And lucky for you it’s at your fingertips. With a personal my Social Security account, your employees can get their Social Security Statement that shows estimates of their future retirement, disability, and survivors benefits. They can check their earnings to verify the yearly amounts that we posted are correct. They can also get estimates of Social Security and Medicare taxes they’ve paid.
10. Our online retirement application is an easy, convenient, and secure way to trail-blaze your way to retirement. You can complete it in as little as 15 minutes and, just like that, you can start the retirement of your dreams.
With these 10 resources, your employees can stay informed about their retirement options. Information is the first step toward achievement. When you retire one journey ends while another begins. Be ready for your next adventure!
Irene Saccoccio is the National Public Affairs Specialist for the U.S. Social Security Administration.
See the original article Here.
Source:
Saccoccio, I. (2016 September 15). 10 Resources to help your employees prepare for retirement. [Web blog post]. Retrieved from address https://blog.shrm.org/blog/10-resources-to-help-your-employees-prepare-for-retirement
Adopting a coaching mindset to help employees plan for retirement
Are your employees prepared for retirement? See how Cath McCabe gives tips and tricks on coaching your employee for retirement.
America may be becoming the land of the free and the home of the grey as more adults are living longer lives.
According to the Administration on Aging, the number of centenarians more than doubled between 1980 and 2013. But lifespans aren’t the only thing increasing – so are the expenses that many older Americans face.
Retiree health care costs have surged exponentially – the Employee Benefits Research Institute (EBRI) estimates that the average healthy 65-year-old man will need $124,000 to handle future medical expenses. For a healthy woman of the same age, the expected amount is $140,000.
Many of these extra years – or decades – will be spent in retirement, so it’s crucial that Americans plan to have the income they need not only to retire, but to last throughout a potentially long retirement.
Since many adults use employer-sponsored retirement plans as a source of retirement funding, plan sponsors are in a key position to act as retirement “coaches” by encouraging employees to plan ahead and help them plan for their financial security in retirement.
Engage employees early and often
We have found that employers are a trusted source of financial information for employees. Plan sponsors can leverage this trust to engage employees with a variety of programs and tools that help them understand their future retirement income needs.
A plan sponsor’s role as coach begins when employees begin their careers by providing financial education. Education can help new employees recognize the importance of contributing to a retirement plan and the benefits of saving early, as well as help to optimize employee participation in retirement programs. Education designed for mid-career employees, and those nearing retirement, can cover more complex topics as they encounter life events that require a change to their road map for retirement.
And if employees can get started earlier in their careers, there is an increased likelihood that employees will have a positive retirement experience. A recent survey among current TIAA retirees found that those who began retirement planning before age 30 are more likely to retire before the age of 60, and 75 percent say they are very satisfied with their retirement.
Coach employees through education and advice to create a retirement road map
Many Americans need help in setting and achieving their retirement goals – a recent survey found that 29 percent of Americans are saving nothing at all for retirement. It’s important to develop a retirement coaching strategy that can help put participants in the right frame of mind and offers the resources they need to establish clear retirement goals and a road map for achieving those goals.
Many people think about their retirement savings in terms of accumulation – how much of a “nest egg” they’re able to build to fund their retirement. But employers should help their employees think about their retirement savings in terms of the amount of income they will have each month to cover their living expenses. Having a source of guaranteed lifetime income can help employees mitigate the risk of outliving their retirement savings.
As a rule of thumb, most employees will need between 70 percent and 100 percent of their pre-retirement income. If employees find they are not on track to meet this ratio, plan sponsors can help identify the necessary actions to increase the chance of success. For example, employees may need to increase their savings rate. Plan sponsors can help by encouraging employees to save enough of their own dollars to get the full employer match. If employees already are saving enough to get the full match, they then should aim to increase their contributions each year until they are saving the maximum amount allowed. Many employees older than 50 also can take advantage of catch-up provisions to save additional funds.
Perhaps the most important function of education is to drive employees to receive personalized advice from a licensed financial consultant supporting the employer’s retirement plan. This is where the road map is created, with the advisor providing turn-by-turn guidance. For most employees, an annual meeting can help keep them on track.
Why is it important to “coach” employees to create the road map? Simply put, it can improve both plan outcomes and the employees’ retirement outcomes. Advice is proven to positively correlate with positive action – enrolling, saving or increasing saving or optimizing allocations. (See this Retirement Readiness research for more information). Individuals who have discussed retirement with an advisor are much more likely to “run the numbers” and calculate how much income they’ll need in retirement – 79 percent versus only 32 percent who have not met with an advisor.
Helping employees along the road to retirement is a win-win for employees and plan sponsors, even beyond the fiduciary requirements. A 2015 EBRI report found that 54 percent of employees who are extremely satisfied with their benefits, such as their retirement plan and health insurance, also are extremely satisfied with their current job. Similarly, a 2013-2014 Towers Watson study revealed that nearly half (45 percent) of American workers agree that their retirement plan is an important reason why they choose to stay with their current employer. Establishing strong connections between employees and their retirement plans may aid employers’ retention efforts.
Supporting employees on their retirement readiness journey
Once employees have a better sense of the actions they need to take, plan sponsors can provide additional support by highlighting the investment choices that may help employees achieve their desired level of income. Many employees may understand how to save, but they are far less familiar with how and when to withdraw and use their savings after they have stopped working. Offering access to lifetime income options, such as low-cost annuities, through the plan’s investment menu can help employees create a monthly retirement “paycheck” that they can’t outlive.
The peace of mind that these solutions offer can last a lifetime, too. A survey among TIAA retirees found that those who have incorporated lifetime income solutions into their retirement have been satisfied with that decision. Among the retirees with a fixed or variable annuity, 92 percent are satisfied with their decision to annuitize.
Employers also should set a benchmark for regularly evaluating employees’ progress toward their retirement goals. This will allow employees to monitor their retirement outlook and identify opportunities to adjust their savings strategy so they don’t veer off their retirement road map.
Remember the emotional aspect of retirement
In addition to the financial aspects of retirement planning, it’s important to factor in emotional considerations. Offering a mentoring program, one-on-one advice and guidance sessions, or workshops and seminars to guide people on how to navigate this major milestone could be helpful for new retirees.
For some employees, going from working full time to not working at all may be a too abrupt change. Employers may want to consider offering a phased approach to retirement that gives employees the opportunity to work part time or consult to help ease the transition. An alumni program that offers occasional reunions or other programming can help retirees still feel connected to their organization for many years after they stop working.
Employers are uniquely positioned to guide employees through the retirement planning process, from early in their careers to their last day in the office – and beyond. It’s not enough to simply get employees to retirement: Plan sponsors need to help them get through retirement as well. Establishing a coaching mindset can be an effective way to actively engage employees in retirement planning and help them see that the end of their working careers can be the beginning of a wonderful new stage of life.
See the Original Post from BenefitsPro.com Here.
Source:
McCabe, C. (2016, August 04). Adopting a coaching mindset to help employees plan for retirement [Web log post]. Retrieved from https://www.benefitspro.com/2016/08/04/adopting-a-coaching-mindset-to-help-employees-plan?slreturn=1472491323&page_all=1
Retirement income calculators: What to know about their projections
Nick Thornton outlines how retirement income calculator are not all the same. Do you have the guidance of a trusted expert?
Original Post from BenefitsPro.com on June 24, 2016
Not all retirement income projection tools are the same.
In fact, the modeling tools, which are becoming default features on recordkeeping and retail advisory platforms, generate wildly varying interpretations of how retirement savings will translate into income when the golden years arrive.
A new study from Corporate Insight, a provider of research and analytics to the financial services industry, surveyed 12 income-modeling tools — six from recordkeepers’ platforms, and six from retail advisory providers.
What the company found could call into question the value of some modeling tools in their existing form.
For retirement needs analysis, the Consumer Price Index isn't enough.
Analysts at Corporate Insight created a hypothetical saver profile: A single, 40-year old male New York resident who makes $100,000 a year and defers 10 percent of his income to a defined contribution plan, which has a balance of $100,000. His employer match is 3 percent. His 401(k) is allocated to suit his moderate level of risk tolerance, and he anticipates drawing a $1,500 a month Social Security benefit upon retiring at age 67.
Those factors, and others, were in put into the calculators, with a goal to replace 85 percent of income in retirement.
What came out was a variance in projections that amounted to nearly $30,000 in annual income, in the case of the greatest discrepancy.
$6,013 a month vs. $3,772 a month
MassMutual’s Retirement Planner tool, which is part of its recordkeeping platform, projected Corporate Insight’s hypothetical saver’s monthly income at $6,013. TIAA’s Retirement Advisor tool, a part of its recordkeeping platform, estimated the same input data to generate $3,772 a month.
The average monthly projection for the 12 modeling tools was $4,792.
No two calculators generated the same projected income.
But the Principal’s Retirement Wellness Planner, Prudential’s Retirement Income Calculator, and WealthMSI’s Retirement Planner 1, the tool of the plan rollover specialist that was acquired by DST in 2015, projected incomes within $88 of one another.
Gap analysis component
Nine of the 12 analyzed tools feature a “gap analysis” component, which compares current retirement income projections to a predetermined income replacement goal.
That analysis — measuring how an investor’s savings tendencies measure against the set goal — provides valuable context to income projection modeling, say Corporate Insight’s analysts, “and should be incorporated into the results of all retirement planning tools,” according to the report. MassMutual, the CalcXML 401(k) income calculator, and Capital One’s Retire My Way tool do not offer the gap analysis.
The nine tools that do offer gap analysis base their conclusions on vastly different income replacement rate goals.
For instance, Principal’s tool sets a monthly income replacement goal of about $9,000 for Corporate Insight’s hypothetical saver, the highest among the tools. TIAA set the lowest monthly income replacement rate goal, at about $4,900. The average income goal is set at about $6,600.
6 reasons for variation in the projection models
Corporate Insight identified six factors that led to the wide variation in modeling projections: taxes, inflation rates, salary growth, Social Security benefits, investment returns, and age —including expected retirement age and life expectancy assumptions.
Among those variables, assumptions on investment returns were the greatest reason for the wide discrepancy in projections, according to Corporate Insight.
Some of the calculators only permit one investment return assumption, meaning income projections don’t account for lower returns on less risky portfolio allocations after retirement.
Capital One assumes a pre- and post-retirement return of 7.35 percent for investors that select a “moderate” asset allocation strategy. Its tool projects the third highest monthly income at roughly $5,500, despite the fact it does not account for Social Security income or increased salary deferrals as income grows throughout a saver’s career.
Principal’s tool assumes a life expectancy of 92 years, and a 7 percent pre and post-retirement investment return.
The Merrill Lynch and WealthMSI tools apply more modest post-retirement return expectations, at 4.7 percent and 4 percent, respectively.
Part of the explanation behind MassMutual’s highest income projection is that the tool provides a non-adjustable Social Security benefit estimator, which offered a high benefit relative to Corporate Insight’s hypothetical saver’s earnings history, the analysts said.
Betterment and TIAA’s projection tools offer the lowest incomes at $3,791 and $3,772, respectively, largely because they are the only among the surveyed calculators to account for taxes and estimate projections in post-tax amounts, Corporate Insight’s report said.
Takeaways for sponsors and participants
While becoming a common feature, income replacement projection tools are still a relatively novel concept, and are likely to evolve as utilization increases.
Drew Way, senior retirement analyst at Corporate Insight and lead author of the study, said the data suggests sponsors and participants need to regard the tools as more of a guide than an exact predictor of retirement income.
“The biggest takeaway from this study is that individuals using retirement planning calculators need to be mindful that the underlying assumptions the tools employ can have a profound impact on both the results and the goal recommendations,” Way told BenefitsPro in an email.
"It's important, then, to at least know the assumptions a tool is using and to understand that it’s not meant to provide a 100 percent accurate analysis of an individual's level of retirement readiness,” he added. "Instead, the tools are meant to give users an approximation of where they stand with regard to achieving their retirement goals, and to equip them with the knowledge to then make appropriate actions to help them achieve those goals.”
Ready the full article at: https://www.benefitspro.com/2016/06/24/retirement-income-calculators-what-to-know-about-t?ref=mostpopular&page_all=1
Source:
Thornton, N. (2016, June 24). Retirement income calculators: What to know about their projections [Web log post]. Retrieved from https://www.benefitspro.com/2016/06/24/retirement-income-calculators-what-to-know-about-t?ref=mostpopular&page_all=1
4 retirement trends to watch in 2016
Original post benefitspro.com
The Institutional Retirement Income Council has announced the top four retirement industry trends to watch in 2016.
- Financial wellness plans.
According to IRIC, financial wellness will be a big one.
Employers are expected to significantly expand wellness programs that currently focus on physical wellbeing so that they also include features focusing on financial wellbeing.
With all the financial challenges faced by employees—including medical expenses, credit card debt, college expenses, and retirement planning—financial wellness programs have been growing increasingly popular, with that trend expected to continue in the year ahead.
A 2014 Society for Human Resource Management survey reported that 70 percent of HR professionals predicted that baby boomers would likely participate in a financial wellness program if their employer offered one.
Such programs will likely include not just ways to manage debt and better save for retirement, but also how to calculate a spend-down plan once in retirement and how to incorporate Social Security into one’s overall strategy.
- Out of plan or in plan?
Next is the trend that pits out-of-plan income solutions against in-plan solutions.
In their quest to be sure that retirement savings will provide a regular source of income throughout retirement, participants have been looking outside of their retirement plans to find ways to translate a lump sum into a monthly check.
However, the Department of Labor’s expected implementation of a fiduciary rule will have a major effect on out-of-plan advisors, as well as in-plan options.
The release of a Center for Retirement Research study that showed IRAs’ rate of return a poor substitute for that of defined benefit plans will, according to IRIC, “make it all the more difficult for advisors to recommend moving out of a defined contribution plan to those eligible to keep their assets in the plan.”
As a result, it expects that participants will be more likely to leave their assets in a retirement plan rather than rolling them over.
- In-plan retirement income solutions.
The move to keeping assets inside retirement plans, IRIC said, “should cause an increase in participant interest in investment vehicles that provide solutions to the draw-down, rather than accumulation, of retirement assets.”
As a result, revisiting in-plan retirement income solutions will become a major focus for plan sponsors in 2016.
IRIC said that plans that have not considered this will be under pressure from participants to “consider new solutions to address the risks of retirement income sustainability, longevity risk, market timing risk and in-plan distribution options.”
- In-plan distribution flexibility.
Plan sponsors will have to consider the question of which distribution options will be available to terminated participants.
If a plan only offers two options—complete lump-sum distribution or keeping the entire balance in the plan—it’s likely that sponsors will want to explore the possibility of offering periodic withdrawal opportunities, so that they can encourage terminated participants to keep their assets in the plan—which can provide benefits not only to the participants, but also to the plan itself in the form of reduced administration and fee costs.
The Retirement Readiness Challenge: Five Ways Employers Can Improve Their 401(k)s
Originally posted October 20, 2014 on www.ifebp.org.
Today, nonprofit Transamerica Center for Retirement Studies® ("TCRS") released anew study and infographic identifying five ways employers can improve their 401(k)s. As part of TCRS' 15th Annual Transamerica Retirement Survey, this study explores employers' views on the economy, their companies, and retirement benefits. It compares and contrasts employers' views with workers' perspectives.
"As the economy continues its prolonged recovery from the recession, our survey found upbeat news that many employers are hiring additional employees. Moreover, they recognize the value of offering retirement benefits," said Catherine Collinson, president of TCRS.
Seventy-two percent of employers have hired additional employees in the last 12 months (compared to only 16 percent that say they have implemented layoffs or downsizing). Among employers that offer a 401(k) or similar plan (e.g., SEP, SIMPLE), the vast majority (89 percent) believe their plans are important for their ability to attract and retain talent.
Retirement Benefits and Savings Are Increasing (Yet More Can Be Done)
Employers are increasingly offering 401(k) or similar plans to their employees. Between 2007 and 2014, the survey found that the percentage of employers offering a 401(k) or similar plan increased from 72 percent to 79 percent. The offering of a plan is highest among large companies of 500 or more employees (98 percent) and small non-micro companies of 100 to 499 employees (95 percent) and lowest among micro companies of 10 to 99 employees (73 percent).
During the recession and its aftereffects, many 401(k) plan sponsors suspended or eliminated their matching contributions. Plan sponsors that offer matching contributions dropped from 80 percent in 2007 to approximately 70 percent from 2009 to 2012. In 2014, the survey found that 77 percent of plan sponsors now offer a match, nearly rebounding to the 2007 level.
"Despite the tumultuous economy in recent years, 401(k) plan participants stayed on course with their savings," said Collinson. According to the worker survey, participation rates among workers who are offered a plan have increased from 77 percent in 2007 to 80 percent in 2014. Among plan participants, annual salary contribution rates have increased from seven percent (median) in 2007 to eight percent (median) in 2014, with a slight dip to six percent during the economic downturn.
Workers' total household retirement savings increased between 2007 and 2014. The 2014 estimated median household retirement savings is $63,000, a significant increase from 2007, when the estimated median was just $47,000. Notably, Baby Boomers have saved $127,000 (estimated median) in household retirement accounts compared to $75,000 in 2007. "For some workers, current levels of retirement savings may be adequate; for many others, they are not enough," said Collinson.
Five Ways Employers Can Improve Their 401(k)s
"401(k)s play a vital role in helping workers save and invest for retirement," said Collinson. "Until every American worker is on track to achieve a financially secure retirement, there will be opportunities for further innovation and refinements to our retirement system."
The survey identified five ways in which employers, with assistance from their retirement plan advisors and providers, can improve their 401(k)s. Plan sponsors are encouraged to consider these enhancements to their plans:
1. Adopt automatic plan features to increase savings rates
"Automatic enrollment is a feature that eliminates the decision-making and action steps normally required of employees to enroll and start contributing to a 401(k) or similar plan," said Collinson. "It simply automatically enrolls employees. They need only take action if they choose to opt out and not contribute to the plan."
The percentage of plan sponsors offering automatic enrollment increased from 23 percent in 2007 to 29 percent in 2014. Plan sponsors' adoption of automatic enrollment is most prevalent at large companies. Fifty-five percent of large companies offer automatic enrollment, compared to just 27 percent of small non-micro companies and 21 percent of micro companies.
Plan sponsors automatically enroll participants at a default contribution rate of just three percent (median) of an employee's annual pay. "Defaulting plan participants into a 401(k) plan at three percent of annual pay can be very misleading because it implies that it is adequate to fund an individual's or family's retirement when in most cases, it is not," said Collinson. "Plan sponsors should consider defaulting participants at a rate of six percent or more of an employee's annual pay."
"Automatic increases can help drive up savings rates: Seventy percent of workers who are offered a plan say they would be likely to take advantage of a feature that automatically increases their contributions by one percent of their salary either annually or when they receive a raise, until such a time when they choose to discontinue the increases," said Collinson.
2. Incorporate professionally managed services and asset allocation suites
Professionally managed services such as managed accounts, and asset allocation suites, including target date and target risk funds, have become staple investment options offered by plan sponsors to their employees. These options enable plan participants to invest in professionally managed services or funds that are essentially tailored to his/her goals, years to retirement, and/or risk tolerance profile.
Eighty-four percent of plan sponsors now offer some form of managed account service and/or asset allocation suite, including:
56 percent offer target date funds that are designed to change allocation percentages for participants as they approach their target retirement year; 54 percent offer target risk funds that are designed to address participants' specific risk tolerance profiles; and, 64 percent offer an account (or service) that is managed by a professional investment advisor who makes investment or allocation decisions on participants' behalf.
"For plan participants lacking the expertise to set their own 401(k) asset allocation among various funds, professionally managed accounts and asset allocation suites can be a convenient and effective solution. However, it is important to emphasize that plan sponsors' inclusion of these options, like other 401(k) investments, requires careful due diligence as well as disclosing methodologies, benchmarks, and fees to their plan participants," said Collinson.
3. Add the Roth 401(k) option to facilitate after-tax contributions
"Roth 401(k) can help plan participants diversify their risk involving the tax treatment of their accounts when they reach retirement age," said Collinson. The Roth option enables participants to contribute to their 401(k) or similar plan on an after-tax basis with tax-free withdrawals at retirement age. It complements the long-standing ability for participants to contribute to the plan on a tax-deferred basis. Plan sponsors' offering of the Roth 401(k) feature has increased from 19 percent in 2007 to 52 percent in 2014.
4. Extend eligibility to part-time workers to help expand retirement plan coverage
"Expanding coverage so that all workers have the opportunity to save for retirement in the workplace continues to be a topic of public policy dialogue. A tremendous opportunity for increasing coverage is part-time workers," said Collinson. Only 49 percent of 401(k) or similar plan sponsors say they extend eligibility to part-time workers to save in their plans.
"Employers should consider consulting with their retirement plan advisors and providers to discuss the feasibility of offering their part-time workers the opportunity to save for retirement," said Collinson.
5. Address any disconnects between employers and workers regarding benefits and preparations
The survey findings revealed some major disconnects between employers and workers regarding retirement benefits and preparations. For example: Ninety-five percent of employers that offer a 401(k) or similar plan agree that their employees are satisfied with the retirement plan that their company offers; yet, in stark contrast, only 80 percent of workers who are offered such a plan agree that they are satisfied with their employers' plans.
"Starting a dialogue between employers and their employees could help employers maximize the value of their benefits offering while also helping their employees achieve retirement readiness," said Collinson. Just 23 percent of employers have surveyed their employees on retirement benefits and even fewer workers (11 percent) have spoken with their supervisor or HR department on the topic in the past year.