New research suggests 401k plan sponsors may play an even bigger role in American workers’ retirement outcomes than they realize.
According to a study by Empower Retirement, the features included in plan designs heavily impact participants’ chances of securing a successful retirement. More specifically, “an employee match that’s understood by workers, the availability of professional advice, auto features and plan access are all shown to be crucial elements to increasing retirement preparedness,” the company explained in a statement.
Its newest white paper, Scoring the Progress of Retirement Savers, analyzed data from a survey of 4,000 working adults under age 64 who are participating in a retirement plan. Empower calculated results according to its Retirement Progress Score (RPS), “which is a numeric estimation of the percentage of working income that American households are on track to replace in retirement.”
Results indicate the following plan features have resulted in improved retirement confidence and preparedness:
- Knowing the match: Over half (56 percent) of workers with plans offering an employer match contribute to retirement savings. However, nearly three-quarters (73 percent) of employees who are aware of their plan’s match rate take full advantage of the feature, highlighting the importance of educating participants.
- Getting advice: On average, those surveyed are “on-track to replace 64 percent of their current income in retirement.” But again, education seems key as “respondents using an advisor have an RPS of 91 percent versus 58 percent for those with no advisor.”
- Plan access: Unsurprisingly, employees who are eligible to participate in an employer-sponsored retirement plan “have a much higher RPS than those who do not have access – 79 versus 45 percent.” Eight in 10 of respondents with access to a plan report feeling confident that they’re “making the most of it.”
- Auto-enrollment: On average, respondents in plans featuring auto-enrollment are currently set to replace 95 percent of their income. Employees who manually opted into a plan are only on-track to replace 84 percent.
- Auto-escalate: Auto-escalation appears to be particularly powerful. Participants in plans with this feature earned an RPS of 107 percent, while those without received a score of 80 percent.
“Collaboration between employers and employees is an essential ingredient necessary to achieving better retirement preparedness,” Edmund F. Murphy III, president of Empower Retirement, said in a statement. “After making the crucial decision to offer a retirement plan, employers should consider plan design features that have proven to be effective.”