Employers making retirement readiness a top priority, Aon Hewitt survey finds

A new survey by Aon Hewitt reveals that improving the financial wellness of their workforce has become a bigger priority for many employers. To help employees save and prepare for retirement, employers are taking steps to ensure workers understand the financial resources they need to retire, while also offering more sophisticated defined contribution (DC) plan features that make investing easier and more accessible.

Retirement savings shortfall

Aon Hewitt surveyed more than 425 U.S. employers, representing 11 million employees, to determine their current and future retirement benefits strategies. According to Aon Hewitt, workers need 11 times their final pay to meet their financial needs in retirement, but the average U.S. worker has a savings shortfall of 2.2 times pay. Aon Hewitt’s survey shows that to help bridge this gap, the vast majority (80%) of employers are making financial wellness a top priority in 2013. Nearly two-thirds (61%) are looking beyond current participation and savings rates and are helping workers evaluate their retirement readiness, up from 50% in 2012. In addition, the survey found that 86% of companies plan to focus communications initiatives on helping workers evaluate and understand how much they need to save for retirement.

“Employers understand that financial wellness is more than what workers are doing today in terms of savings in their retirement programs—that it’s evaluating whether their long-term investment strategies are positioning them to be ready when it comes time to retire, and whether other priorities are getting in the way,” said Patti Balthazor Björk, director of Retirement Research at Aon Hewitt. “Helping workers get an accurate picture of their future needs and whether they are on track to meet those needs, and helping them create a roadmap for achieving those goals is paramount.”

New plan features offered

To help workers reach their retirement goals, employers continue to offer and promote the use of investment advisory tools. More than three-quarters (76%) currently offer target-date funds as a way to provide workers with a simple and straightforward approach to investing. Of those who do not offer target-date funds, 35% will likely add this option in 2013, the survey found. Managed accounts and online third-party investment advisory services also continue to gain popularity, with 64% of employers offering these features, up from just 40% in 2012.

“To ensure that a worker’s investment risk exposure appropriately matches their needs given their age and other factors, it is critical that 401(k) investors periodically rebalance their portfolios. However, we know that most rarely, if ever, do so because they are overwhelmed or unsure about their investment choices,” explained Björk. “Features like target-date funds and managed accounts take some of the guess work out of investing, which can help workers stay on track with their savings goals.”

In addition to focusing on financial wellness, Aon Hewitt’s survey shows employers are making plan design changes to their DC plans to help workers better manage their money once they reach retirement. The popularity of retirement income solutions—or annuities—continues to rise. Currently, 28% of companies offer in-plan retirement income solutions—including professionally managed accounts with a drawdown feature, managed payout funds, or insurance or annuity products that are part of the fund line-up. This is nearly twice the percentage of employers (16%) that offered these solutions in 2012. Of those employers that do not currently have these options, 30% said they are likely to add them in 2013.

“Retirement income solutions offer employees a way to receive regular, scheduled payments from their DC plan much like what they would have seen from a traditional DB plan. These solutions have become increasingly attractive to workers because they enable them to manage their retirement income in a predictable way once they reach retirement,” said Björk. “However, some employers are hesitant to add these features in part because of administrative and fiduciary challenges associated with implementation. Additionally, some companies are waiting to allow the market to mature and products to evolve further.”

Source: Aon Hewitt news release, January 16, 2013.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

Visit our News Library to read more news stories.