A wake-up call for employers who still refuse to offer a 401(k) plan; American workers value their retirement plans so much that three out of four would choose a match on their retirement contribution over a salary increase.
“Plan participants told us that, without a doubt, they would be in much worse shape without access to an employer-sponsored plan,” said Diane Gallagher, vice president of Practice Management with American Century Investments, which conducted the survey. “Nearly all express regrets about their personal savings habits, which says to us that employers have the opportunity to structure plans that can help drive more effective retirement preparations for their employees. In essence, employers have the keys to the kingdom.”
It also found saving continues to be the area for which employees have the most regret and need the most guidance. Plan participants count on their employers’ direction and guidance in helping save and invest for retirement, and they strongly value a retirement plan as part of their compensation and benefits.
However, some 90 percent of participants expressed at least a “little” regret with respect to saving for their future, and 80 percent believe they could have saved more in the past, according to the survey.
Other survey findings include:
- Participants point to the first five years of their working lives as the period of time for which they have the most regret.
- Common obstacles to saving cited include not earning enough, having to pay off debts and incurring unexpected expenses.
- Nine in 10 said it would be “at least somewhat important to tell their younger selves to save more.”
- However, seven in 10 said they would be “at least likely to listen to their future self.”
- Looking back, participants’ single biggest regret is not saving enough for retirement.
- Participants are five times more likely to believe it is worse to have too little money in retirement than to miss out on something today.
“The recognition of those first five years is an acknowledgment of the effect of compounding and awareness of their own behavior,” Gallagher said. “Participants accept the importance of habit, and starting earlier would have resulted in a pattern of consistent saving over the years.”
Employers’ Influence
The influence of employers on participants saving for retirement cannot be overstated, according to the study:
- Despite giving themselves a “C” on saving and a “C+” on investing for retirement, participants awarded a “B-” grade on the help offered by their employers.
- Eight out of 10 employees want at least a “slight nudge” from their employers in helping to save and invest for retirement.
- Some 70 percent believe automatic enrollment at six percent is something the company should do.
- More than 50 percent feel automatic enrollment should be implemented retroactively.
- Seven in 10 show at least some interest in a regular, incremental automatic increase.
- The same number (70 percent) support plan investment re-enrollment into target-date solutions.
“Although plan sponsors may be reluctant to put into place aggressive defaults or automatic programs for fear of employee backlash, our research shows that participants are actually in favor of these types of measures,” Gallagher said. “As long as there is an ‘opt-out’ provision in place, we believe that employers can pay attention to the overwhelming validation among plan participants for automatic features.”
- A defined contribution plan is viewed by more than 80 percent of participants as one of their most important benefits, the research found. Other key findings:
- More than eight out of 10 participants strongly agree that their employer offering a retirement plan makes them feel better about working there.
- Roughly two thirds of employees would choose to work for a company offering a retirement plan over one that does not, even if a competing company offered a five percent higher salary.
- Eight in 10 percent of participants would prefer a 100 percent company match on their retirement contribution up to three percent, rather than a three percent salary increase.
- Three quarters of participants feel the same way even when the figure is raised to six percent.
“The majority of respondents choosing a contribution match over a comparable salary increase truly underscores the value they place on their retirement plans,” Gallagher said. “We believe employers and their providers have a great opportunity to make a real difference in the livelihood of their employees.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
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