Faith in retiring with enough money and on time is at all-time lows for U.S. workers, but employers have an opportunity to change that, a new survey says.
Nearly a third of respondents to the 23rd annual Retirement Confidence Survey, which was released in March, say they are not at all confident about being able to afford a comfortable retirement—the lowest amount of confidence respondents have ever had to the question. Plus, as a result of the lack of confidence, nearly a quarter, or 22 percent, of respondents say they expect to work longer than they originally planned.
"This is a lesson for workers today," says Mathew Greenwald, co-author of the study conducted by the Employee Benefit Research Institute and Mathew Greenwald & Associates Inc. "Do not put off saving."
Clearly, survey results show American workers feel they are behind in saving for retirement. Of the 251 retirees and 1,254 workers age 25 or older who responded to the survey, 57 percent say they have less than $25,000 in household savings and investments.
"Putting off saving for retirement is making the problem even worse," says Jack VanDerhei, the EBRI's research director.
But employer-sponsored 401(k) plans may be able to change this, VanDerhei says. Survey results show 82 percent of eligible workers participate in a plan.
A new question in the survey shows that plan sponsors could play a major role in helping workers save. Of the workers not offered a 401(k) plan, 44 percent say they'd let their employer automatically enroll them using 6 percent of their pay to start the account. Plus, 11 percent say they would contribute more than the original amount, and 16 percent say they would pull out of the plan.
It's a significant statement because most employers start or default workers in 401(k) plans using 3 percent of pretax salary, says Robyn Credico, senior consultant and defined contribution practice leader for Towers Watson & Co. Workers who are typically enrolled at 3 percent of pay typically don't bump their contribution amounts. Automatically enrolling at a high amount of pay like 6 percent, plus increasing even by 1 percentage point every year is what will improve workers' current situation, Credico says.
While that seems great for employees, employers would have a few issues to consider when workers significantly increase their contribution amounts, she adds.
First, employers need to consider their budget for matching contributions. Typically a formula is used, and the amount an employer contributes hinges on how much the employee puts into the account (up to a predetermined ceiling). Employers could change the formula, lowering what they will pay so budgets stay intact while employees reach for that higher contribution percentage. It sounds like a doable change, but many employers risk losing their competive edge when hiring new employees, Credico says.
"Employers should default people as high as they can and think more creatively to see how they can maximize their contribution budget," Credico says. "But most employers don't want to lower the match because they know they won't have the same competitive match for new hires that other companies have."
Credico suggests employers consider tiered contribution schedules to accommodate different kinds of workers.
"Its important employers know their workforce and what they value," Credico says. Employers "don't need to use a one-size-fits-all formula. Most record keepers can accommodate some level of sophistication."