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"Employees know they need to save for retirement, but it's usually not a priority and they often need some help and guidance in mapping out a path for getting there," said
Paving the Way to Retirement Readiness
Boosting the Employer Match
To help contribute to employees' retirement security, a growing number of employers have increased their company match to the 401(k) plan.
"In the 20 years we've been doing this study, this is the first time we saw the most common match increase," said Austin. "At a time where the defined contribution plan is the primary retirement savings vehicle for many individuals, it is refreshing to see employers increase their matching contribution amounts. Our experience shows that almost three-quarters of employees save at a level equal to or above the company match threshold. Increasing the amount employers are willing to contribute may help encourage those employees to save at more robust rates."
Relaxing the Rules
Rather than making employees wait to enter the plan, employers have drastically relaxed their eligibility requirements over the past decade. Seventy-six percent of plans now allow workers to begin making pre-tax contributions immediately upon hire, up from 71 percent in 2011. Just 45 percent of employers allowed for day-one contributions in 2001. In addition, 53 percent of plans have corresponding immediate eligibility for employer-matching contributions, while 50 percent of plans that offer a non-matching employer contribution allow immediate eligibility.
"The 21st century workforce is drastically different in terms of loyalty, tenure and the relationship between employers and employees," said Austin. "People hop from job to job with increasing frequency and many employers find it is important from an attraction perspective to have a retirement plan that is designed to give employees the best chance at achieving retirement readiness. Providing new hires with immediate eligibility helps ensure they don't lose ground in terms of saving."
Broadening Roth Availability
Recognizing that individuals have different tax situations, employers have grown increasingly keen on adding Roth provisions to their plans. Over the last six years, the percentage of employers that allow Roth contributions has increased from 11 percent to 50 percent. Where Roth is available, 27 percent of plans allow in-plan Roth rollovers/conversions. Another 16 percent of companies are planning to add the feature within the next 12 months.
"The Small Business Jobs and Credit Act of 2010 and the American Taxpayer Relief Act paved the way for an increasing number of employees to reap the benefits of a Roth account," said Austin. "Plan sponsors are enthusiastic about making the Roth provision available to their workforce and allowing them to benefit from any tax advantages."
Facilitating Access to Expert Resources
Because many employees possess limited investment knowledge, employers have significantly increased the availability of outside investment advisory services to help workers make critical decisions that will ultimately impact their ability to adequately save for retirement. Three out of four plan sponsors now offer access to such services, with the most common being one-on-one financial counseling (59 percent), online guidance (55 percent), managed accounts (52 percent) and online advice (46 percent). The largest increase came in the number of employers offering managed accounts, which stood at just 29 percent in 2011. Target date funds, another popular form of investment advice, are now offered by 86 percent of plan sponsors.
"Different segments of the workforce prefer various forms of help. Some prefer to simply hand over the keys to their retirement savings to someone else—hence the growing popularity of managed accounts—but a large percentage of employees prefer to take a more hands-on approach to directing their investments," said Austin. "Many employers are responding to this diversity by offering a spectrum of support, which should ultimately provide the most participants with the expert resources they need to improve their retirement readiness."
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