Aon Hewitt surveyed 210 mid-to-large U.S. companies representing 6.2 million workers. The survey found that 30% of companies are confident employees are sufficiently prepared for retirement, showing no improvement from 2010. As a result, companies are focusing on adding features and making plan design changes to boost savings rates and promote responsible investing, said Aon Hewitt.
In 2010, 57% of plans offered automatic enrollment, compared to just 24% in 2006. Of the plans that do not currently have this feature, more than one-third (36%) are likely to add it in 2011.
Additionally, automatic contribution escalation is now offered by 47% of plans (up from 17% in 2006) and automatic rebalancing is offered by 49% of plans (up from 27% in 2006). More than a quarter of employers (26%) are likely to add automatic escalation in 2011, and a third are considering adding automatic rebalancing.
More companies are also offering tools and services to help participants make better investing decisions, the survey found. More than half (56%) offer online investment guidance and 36% offer online investment advice and managed accounts. In 2010, just 28% of employers offered managed accounts. A majority (83%) of survey respondents offer target-date funds as well.
In 2011, nearly half (47%) of companies polled are likely to add an online guidance feature, (36% are likely to offer online advice and 30% are considering offering managed accounts.Sixty-one percent of employers provide online modeling tools to help employees determine how much they can spend each year of retirement based on their current savings levels. Additionally, more than one quarter (27%) already provide some form of retirement income solution. Nearly one in five plans (19%) facilitate annuities either outside, or within a plan and 13% plan to add one of these in-plan solutions this year, including managed payout funds, managed accounts with drawdown feature and annuities.
DC Fees and DB Freeze
Aon Hewitt's survey found most companies (85%) plan to review their defined contribution (DC) fund operations in 2011, including fund expenses and revenue sharing. Nearly half (48%) indicate they will review the total plan cost more frequently and/or thoroughly during the year, and 69% of companies indicate they will increase the amount of employee communication surrounding investments and plan fees.
A vast majority of pension plan sponsors (75%) plan to make no changes to plan design in 2011. However, more employers are likely to close or freeze their defined benefit plans in the coming year. Among the plans that have ongoing accruals for some or all employees, 16% say they're very likely to freeze accruals during 2011, compared to just 9% in 2010. In addition, among plans that are open to new hires, 13% are very likely to close participation to new employees, up 4 percentage points from 2010.
Other survey findings include:
- More than a third of employers (34%) offer Roth 401(k), up from 29% in 2010. Of those not currently offering this option, 38% indicate they will add the capability in 2011.
- Nearly a quarter (23%) of employers suspended or reduced company matching contributions in the past two years. Of those, more than half (55%) have already reinstated it in some form and 18% plan to reinstate or increase it in 2011. Another 11% plan to do so in 2012 or later.
- Retiree medical benefits will continue to decline. Seven-in-ten employers provide some type of post-retirement medical coverage to their current or future retirees. Nearly two thirds (65%) currently offer prescription drug coverage to post-65 retirees and file for the Medicare Part D Retiree Drug Subsidy (RDS). However, only 53% of companies plan to keep the same strategy in 2013 when the health care reform law eliminates the tax-free nature of the Medicare Part D subsidy.