U.S. employees in DC plans believe those plans will play a leading role in funding their retirement, and they also expect help with their plans to navigate the financial realities of life after work, according to two U.S. surveys from BlackRock Inc.
Of 1,000 U.S. employees in DC plans surveyed by the investment management firm, 46% said their DC plan will be their most important source of retirement income, cited by three times as many people as those who indicated social security as their key income source.
An estimated 51.6 million American workers are now enrolled in DC retirement plans—employer-sponsored retirement savings plans funded by employee contributions deducted on a pre-tax basis from income.
The employees polled participate in a variety of DC plans, including 401(k) plans, 403(b) plans, profit-sharing plans and stock purchase plans. While most of those surveyed believe that they have a good understanding of how to save for their retirement, about 55% of employees polled disagreed with the statement “I don’t know enough to achieve a financially secure retirement on my own.”
Many expressed a desire for greater education from their DC plan in how to effectively plan for financial concerns they will encounter while in retirement.
More than half of employees say their employer has been “not very” or “not at all helpful” in such key post-retirement areas as “helping me make sure my money lasts all through my retirement,” “educating me on the realities of life in retirement,” “warning me if I am not saving enough for retirement” and “helping me safeguard my assets in retirement.”
And, about three-quarters of respondents say they want more information and guidance on these key aspects.
“Ever since DC plans were introduced, the primary emphasis, rightfully so, has been on the saving and investing phase—that is, helping employees to accumulate assets throughout their working years to support themselves in retirement,” said Chip Castille, managing director and head of BlackRock’s U.S. and Canadian DC group.
But there has been relatively little focus on the spending phase—the years in retirement when employees need to turn those accumulated assets into their primary source of sustainable spending.
“With more and more Americans fast approaching retirement’s threshold, we’ve reached a critical inflection point, and there is no clear road map for helping them use their savings to support themselves in retirement.”
The doubt employees seem to harbour concerning their employers’ commitment to helping them through their retirement years may not be unfounded.
According to BlackRock’s survey of 119 plan sponsors representing “mega” DC plans with a median asset size of $2 billion, nearly nine of 10 polled indicate they feel at least somewhat responsible for employees’ financial security in retirement, and many claim “a great deal of responsibility” for employee saving and investing activities.
For example, 83% of plan sponsors feel this level of responsibility for “helping employees understand retirement plan investment options,” 56% for “giving employees an incentive to save and invest for retirement,” and 51% for “helping employees learn about investing and building a nest egg.”
At the same time, fewer than one in five plan sponsors indicated they feel “a great deal of responsibility” for such things as “helping employees make sure their money lasts all through retirement” or “helping them safeguard assets in retirement.”
Castille says some of this discrepancy is due to lack of regulatory clarity. He says that while regulators are generally clear in indicating plan sponsors’ obligations for helping plan members save for retirement, obligations are less clear regarding helping members navigate their way through their retirement years.