Despite strong participation in employer-sponsored 401k plans, only a few employers (15 percent) are satisfied with their workers’ current savings rates, according to a new report from Aon Hewitt.
In response, employers are focused on increasing savings rates and will continue to expand financial wellbeing programs this year.
According to the report, employers will also focus on a few key areas with an eye toward improving 401k contribution rates in 2017:
Emphasizing retirement readiness
Nearly all employers (90 percent) are concerned with their workers’ level of understanding about how much they need to save to achieve an adequate retirement savings, and as a result are likely to take action this year to help workers make plans to reach their retirement goals.
“Employers are making retirement readiness one of the important parts of their financial wellbeing strategy by offering tools and modelers to help workers understand, realistically, how much they’re likely to need in order to retire,” said Rob Austin, director of Retirement Research at Aon Hewitt. “Some of these tools take it a step further and provide education on what specific actions workers can take to help close the savings gap and can help workers understand that even small changes, such as increasing 401k contributions by just 2 percentage points can impact their long-term savings outlook.”
Focusing on financial wellbeing
While financial wellbeing has been a growing trend among employers recently, most employers (60 percent) feel its importance has increased over the past two years. This year, nearly all (92 percent) employers are likely to focus on the financial wellbeing of workers in a way that extends beyond retirement such as help with managing student loan debt, day-to-day budgeting and even physical and emotional wellbeing.
Currently, 58 percent of employers have a tool available that covers at least one aspect of financial wellbeing, but by the end of the year, that percentage is expected to reach 84 percent, according to the Aon Hewitt report.
“Financial wellbeing programs have moved from being something that a few leading-edge companies were offering to a more mainstream strategy,” said Austin. “Employers realize that offering programs that address the overall wellbeing of their workers can solve for myriad challenges that impact people’s work lives and productivity, including their physical and emotional health, financial stressors and long-term retirement savings.”
Refining automation
Employers are taking the lessons learned from automatic enrollment and enhancing their automatic features to help increase savings rates. For example, a separate Aon Hewitt report found more than half of all plans with automatic enrollment default workers at or above the company match threshold. Employers are also adding contribution escalation features and enrolling (or back sweeping) workers who may not have been previously enrolled in the 401(k) plan.
“Employers realize that automatic 401k contribution features can be very effective when it comes to increasing participation in the plan,” Austin added. “Now they are taking an automation 2.0 approach to make it easier for workers to save more and to invest better.”
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.
