With concerns growing that their employees are not saving enough for retirement, U.S. employers are making significant enhancements to their defined contribution (DC) plans, Willis Towers Watson learned in a survey.
“Helping employees with their long-term financial security has emerged as a very high priority for employers,” says Tammy Hughes, senior retirement consultant at Willis Towers Watson. “With most employers now offering a DC plan as their primary retirement savings vehicle, they have become very focused on how to improve their plans and deliver better outcomes to participants. The enhancements they are making should go a long way toward encouraging greater participant savings as well as wiser investment decisions.”
The survey found that 73% of employers automatically enroll their participants, up from 68% in 2014 and 52% in 2009. Sixty percent automatically escalate deferrals, up from 54% in 2014.
Seventy percent offer Roth 401(k)s, up from 54% in 2014 and 46% in 2012. Twenty-five percent have increased their plan contributions in the past five years, and of this group, 60% increased the match, and 44% made benefit changes to their defined benefit (DB) plan.
Forty-two percent have streamlined their investment menu in the past three years, and another 41% plan to do so by 2020.
Nearly all, 93%, of plans use target-date funds (TDFs) as their qualified default investment alternative (QDIA), up from 86% in 2014 and 64% in 2009.
Eighty percent offer health savings accounts (HSAs), and 12% are planning or considering adding them in the next year. Forty-one percent charge a fixed dollar amount per participant to cover recordkeeping fees, up from 32% in 2014.
Seventy-eight percent plan to increase efforts to educate employees about retirement planning, and of this group, 64% plan to offer guidance on how to draw down assets.
Despite these advancements, Willis Towers Watson found areas where sponsors could improve. Only 35% measure the retirement readiness of their participants each year, and of this group, 88% only measure basic plan statistics—such as participation rates, account balances and contribution rates. While 83% of investment committees at the largest plan sponsors say their top priority is to improve retirement readiness, only 17% spend time on this issue in their meetings.
Willis Towers Watson surveyed 349 large and mid-sized DC sponsors last November.