October 20, 2014 (PLANSPONSOR.com) – Investment firm Rebalance IRA found 46% of Baby Boomers polled believe they do not pay any fees at all in their retirement accounts.
In
its survey of 1,165 full-time employed Americans ages 50 to 68, 19% suggest that
their fees are less than 0.5%, and only 4% believe they pay more than 2% in
retirement account fees. Rebalance IRA notes that according to the recent 401(k) Averages Book,
the average employee had various fees totaling 1.5% each year deducted from his
or her 401(k) account. Among smaller plans, the highest fees averaged nearly
2.5%, and were as much as 3.86%.
According
to the Rebalance IRA survey, respondents said they had an average return in
retirement accounts in 2013 of 5.2%. But, Rebalance IRA notes the target
benchmark indexes were up 9.5%, meaning respondents’ retirement investments
underperformed by 4.3%. Yet, more than half of respondents (55%) report they
were satisfied with their returns. Twenty percent of those surveyed did not
know what percentage of their portfolio is currently in stocks or stock funds.
In
addition, the study found 28% of full-time employed Baby Boomers surveyed are
not actively saving for retirement. Two-thirds
(66%) describe themselves as either very anxious or somewhat anxious about
their readiness to retire with enough money.
Forty-four
percent of those surveyed said if they could go back in time, they would learn
more about investing. Sixty-seven percent said they would contribute more to
their retirement accounts.
Respondents
participated in the study between September 12 and September 18, 2014. Detailed
findings are available by request. More information about Rebalance IRA is at www.rebalance-ira.com.
Transamerica Makes Recommendations for Improving 401(k)s
October 20, 2014 (PLANSPONSOR.com) – A study by Transamerica reveals positive news for retirement savings in America, but there’s still room for improvement.
Among
employers that offer a 401(k) or similar plan (e.g., SEP, SIMPLE), the vast
majority (89%) say they believe their plans are important for their ability to
attract and retain talent. Employers are increasingly offering 401(k) or
similar plans to their employees. Between 2007 and 2014, the percentage of
employers offering a 401(k) or similar plan increased from 72% to 79%, the
survey found. The offering of a plan is highest among large companies of 500 or
more employees (98%) and small non-micro companies of 100 to 499 employees (95%),
and it is lowest among micro companies of 10 to 99 employees (73%).
During
the recession, many 401(k) plan sponsors suspended or eliminated their matching
contributions. Plan sponsors that offer matching contributions dropped from 80%
in 2007 to approximately 70% from 2009 to 2012. According to the survey, in
2014, 77% of plan sponsors offer a match, nearly rebounding to the 2007 level.
Catherine
Collinson, president of the Transamerica Center for Retirement Studies (TCRS),
and author of the study report, notes that 401(k) plan participants stayed on
course with their retirement savings during the economic downturn and
subsequent recovery. A survey of employees completed for the study revealed participation
rates among workers who are offered a plan have increased from 77% in 2007 to
80% in 2014. Among plan participants, annual salary contribution rates have
increased from 7% (median) in 2007 to 8% (median) in 2014, with a slight dip to
6% during the economic downturn.
Workers’ total
household retirement savings increased between 2007 and 2014. The 2014
estimated median household retirement savings is $63,000, a significant
increase from 2007, when the estimated median was just $47,000. Baby Boomers
have saved $127,000 (estimated median) in household retirement accounts
compared to $75,000 in 2007. “For some workers, current levels of
retirement savings may be adequate; for many others, they are not enough,”
says Collinson.
The
survey identified five ways in which employers, with assistance from their
retirement plan advisers and providers, can improve their 401(k)s.
Adopt
automatic plan features to increase savings rates.
"Automatic
enrollment is a feature that eliminates the decision-making and action steps
normally required of employees to enroll and start contributing to a 401(k) or
similar plan," Collinson notes. "They need only take action if they
choose to opt out and not contribute to the plan."
The
percentage of plan sponsors offering automatic enrollment increased from 23% in
2007 to 29% in 2014. Plan sponsors' adoption of automatic enrollment is most
prevalent at large companies. Fifty-five percent of large companies offer
automatic enrollment, compared with just 27% of small non-micro companies and 21%
of micro companies.
Plan
sponsors automatically enroll participants at a default contribution rate of
just 3% (median) of an employee's annual pay. "Defaulting plan
participants into a 401(k) plan at 3% of annual pay can be very misleading
because it implies that it is adequate to fund an individual's or family's
retirement when in most cases, it is not," Collinson says. "Plan
sponsors should consider defaulting participants at a rate of 6% or more of an
employee's annual pay."
"Automatic
increases can help drive up savings rates: Seventy percent of workers who are
offered a plan say they would be likely to take advantage of a feature that
automatically increases their contributions by 1% of their salary either
annually or when they receive a raise, until such a time when they choose to
discontinue the increases," she adds.
Incorporate
professionally managed services and asset allocation suites.
Professionally
managed services such as managed accounts, and asset allocation suites,
including target-date and target-risk funds, have become staple investment
options offered by plan sponsors to their employees. These options enable plan
participants to invest in professionally managed services or funds that are
essentially tailored to his/her goals, years to retirement, and/or risk
tolerance profile.
Eighty-four
percent of plan sponsors now offer some form of managed account service and/or
asset allocation suite. The survey found:
56%
offer target-date funds that are designed to change allocation percentages for
participants as they approach their target retirement year;
54%
offer target risk funds that are designed to address participants' specific
risk tolerance profiles; and
64%
offer an account (or service) that is managed by a professional investment
adviser who makes investment or allocation decisions on participants' behalf.
"For plan
participants lacking the expertise to set their own 401(k) asset allocation
among various funds, professionally managed accounts and asset allocation
suites can be a convenient and effective solution. However, it is important to
emphasize that plan sponsors' inclusion of these options, like other 401(k) investments,
requires careful due diligence as well as disclosing methodologies, benchmarks,
and fees to their plan participants," Collinson says.
Add
the Roth 401(k) option to facilitate after-tax contributions.
"Roth
401(k) can help plan participants diversify their risk involving the tax
treatment of their accounts when they reach retirement age," notes
Collinson. The Roth option enables participants to contribute to their 401(k)
or similar plan on an after-tax basis with tax-free withdrawals at retirement
age. It complements the long-standing ability for participants to contribute to
the plan on a tax-deferred basis. Plan sponsors' offering of the Roth 401(k)
feature has increased from 19% in 2007 to 52% in 2014.
Extend
eligibility to part-time workers to help expand retirement plan coverage.
"Expanding
coverage so that all workers have the opportunity to save for retirement in the
workplace continues to be a topic of public policy dialogue. A tremendous
opportunity for increasing coverage is part-time workers," says Collinson.
Only 49% of 401(k) or similar plan sponsors say they extend eligibility to
part-time workers to save in their plans.
"Employers
should consider consulting with their retirement plan advisers and providers to
discuss the feasibility of offering their part-time workers the opportunity to
save for retirement," she adds.
Address
any disconnects between employers and workers regarding benefits and
preparations.
The
survey findings revealed some major disconnects between employers and workers
regarding retirement benefits and preparations. For example, 95% of employers
that offer a 401(k) or similar plan agree that their employees are satisfied
with the retirement plan that their company offers, yet only 80% of workers who
are offered such a plan agree that they are satisfied with their employers'
plans.
"Starting
a dialogue between employers and their employees could help employers maximize
the value of their benefits offering while also helping their employees achieve
retirement readiness," Collinson says. Just 23% of employers have surveyed
their employees on retirement benefits, and even fewer workers (11%) have spoken
with their supervisor or HR department on the topic in the past year.
To
help close the communication gap, TCRS created a survey tool for plan sponsor use.
For
the study, a 21-minute telephone survey was conducted between July 31 and September
17, among a nationally representative sample of 751 employers. A 22-minute, online
survey was conducted between February 21 and March 17, among a nationally
representative sample of 4,143 workers.