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Employees Favor Companies Playing a More Active Role in Retirement Plans

May 13, 2015 — Employees overwhelmingly favor their employers playing a more active role in their defined contribution (DC) retirement plans, but plan sponsors are voicing reluctance to do so. The issue is critical, as more than 88 million U.S. employees participate in a 401(k) or similar DD plan. These plans hold more than $6.8 trillion in assets.

According to a study from Northern Trust of more than 1,000 DC plan participants:

  • 88% strongly or somewhat favor their employers providing tools to help determine if they are saving the correct amount for a financially secure retirement.
  • 80% believe employers should encourage employees to contribute to their retirement plan, and 84% support employers providing incentives to encourage contributions.
  • 72% think employers should provide a viewpoint on contribution amounts.

In addition, more than 4 in 5 employees surveyed said they would consider taking their employer's advice when determining their contribution to a 401(k) plan.

For their part, plan sponsors interviewed for the study have reservations about taking a more active role in encouraging specific levels of saving and providing projections of retirement savings or income for participants.

"Plan sponsors generally agree it's important to encourage saving for retirement," said Jim Danaher, managing director of defined contribution solutions at Northern Trust. "They have real concerns, however, about providing participants with targeted recommendations — by salary level or age — about how much they should be saving."

Interviews with senior executives at large plan sponsors revealed that fiduciary concerns about making prescriptive recommendations are a primary roadblock to more proactive management of DC plans. But plan sponsors' views also were influenced by factors unique to their retirement plans, including the age or financial sophistication of their workforce and whether their company still offers a traditional defined benefit (DB) pension plan.

"The concept of employers taking a more active role in the retirement plans of their employees has yet to catch on throughout the broader marketplace," said Susan Czochara, senior product manager for defined contribution solutions at Northern Trust. "However, simply providing participants with a DC plan and retirement planning tools are not sufficient to ensure they will adequately plan and save for retirement. Our survey indicates that employees would welcome, rather than resent, a stronger guiding hand from their employers. Based on these results and other trends in the marketplace, we view proactive plan sponsors as becoming the new norm."

In addition to the online survey of 1,007 participants, the study is based on 43 in-depth interviews with plan sponsors whose plans have assets totaling more than $352 billion, and 10 leading plan consultants.

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