If an employee is a participant in a 401k plan of a large company, that participant likely has a significantly higher 401k balance than an employee of a medium- or small-sized business.
This is one of the more interesting findings of interest to 401k plan specialists identified in a new report released this week from nonprofit Transamerica Institute and its Transamerica Center for Retirement Studies.
The survey—”Emerging From the COVID-19 Pandemic: The Employer’s Perspective”—looks to identify gaps in U.S. employers’ health and retirement benefits offerings and business practices and shares how employers can better adapt to the evolving needs of employees.
It finds a sizable gap in retirement savings among workers by company size, which starkly illustrates the impact that access to workplace retirement benefits can make.
Workers of large companies have saved $96,000 in total household retirement accounts and those of medium companies have saved $73,000, while small-company workers have saved just $41,000 (estimated medians).
That means the median 401k balance for a participant at a large company (500 or more employees) is 31.5% greater than a worker at a medium-sized company (100 to 499 employees), and is 134% greater than a worker at a small company (less than 100 employees).
“Employer-sponsored retirement plans, including 401ks and similar plans, have proven to be the most effective way to facilitate long-term savings among workers. Unfortunately, not all workers have access to these benefits, especially those working for small companies,” said Catherine Collinson, CEO and president of Transamerica Institute and TCRS.
Illustrating this, the research found just 46% of small companies offer a 401k or similar plan. That’s much lower than at large (92%) and medium (89%) companies. The survey pegs the retirement plan sponsorship rate for all companies at 55%.
It also found that more employers may offer a retirement plan in the future. Among employers that do not offer a 401k or similar plan, 43% say they are likely to begin doing so in the next two years. And 27% of employers unlikely to offer a plan say they would consider joining a multiple employer plan (MEP), pooled employer plan (PEP), or group of plans (GoP).
When it comes to automatic features that can make it more convenient for workers to save, the survey found just 23% of plan sponsors have adopted auto-enrollment.
Another area of concern the research identified is that plan sponsors can be doing more to help workers financially transition to retirement. Relatively few plan sponsors provide access to a financial advisor (44%), education about transitioning into retirement (41%), and educational resources (40%).
Three in 10 have a formal phased retirement program with specific provisions and requirements (31%). Regardless of whether they offer a formal program, some employers have work-related programs to help pre-retirees transition including flexible work schedules and arrangements (44%), the ability to reduce hours and shift from full-time to part-time (36%), and the ability to take on less stressful or demanding jobs (34%).
Addressing the benefits gap
The report at large is based on a survey of more than 1,800 for-profit company employers conducted in late 2021. It also includes relevant comparisons from TCRS’ most recent survey of workers.
Among the other key findings is that 81% of employers feel responsible for helping employees maintain their long-term health and well-being, 72% cite one or more major concerns about employees’ mental health, and 47% have found it difficult to recruit new employees.
“In the wake of the pandemic, employers have been navigating complex issues in a rapidly changing environment, especially in managing the needs of their workforce. However, they can be doing even more to support their employees,” Collinson said.
Almost two-thirds of employers (64%) believe health insurance, retirement benefits, and/or other benefits to be very important in their ability to attract and retain employees.
“A robust compensation and benefits package is a win-win situation in the workplace. It can help employers attract and retain talent while providing employees income, work-life balance, and the ability to save for retirement while protecting their health, well-being, and financial situation,” Collinson said.
Despite this emphasis on employee benefits, there is still a sizeable shortfall when comparing the percentage of employers that offer specific benefits with the percentage of workers who value them as important.
“As employers evaluate their benefits offering, they have an opportunity to further support the physical and mental health and the financial well-being of their employees,” Collinson added.
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Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
