Most American employees are not prepared to maximize the savings potential of their DC pension plans, so employers are offering them more assistance.
This is according to a survey by Aon Hewitt.
One way employers are helping their staff is by increasing their company match to the DC plan. The most common match is now $1.00 per $1.00 on the first 6% of employee deferrals, with 19% of employers reporting this formula. This is up from 10% in 2011. Previously, a match of $0.50 per $1.00 on the first 6% was the most popular.
Overall, nearly all surveyed employers (98%) provide some sort of contribution to the plan.
“In the 20 years we’ve been doing this study, this is the first time we saw the most common match increase,” says Rob Austin, director of retirement research at Aon Hewitt. “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.”
Companies are also making plan eligibility criteria less strict. 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% in 2011. Just 45% of employers allowed for day-one contributions in 2001. In addition, 53% of plans have corresponding immediate eligibility for employer-matching contributions, while 50% 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,” says 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.”
Another way organizations are helping is by providing investment advice to their staff. Because many employees have limited investment knowledge, employers have significantly increased the availability of outside investment advisory services. Three out of four plan sponsors now offer access to such services. The most common ones include one-on-one financial counseling, managed accounts and online advice.
The survey polled more than 400 plan sponsors in the United States.
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