Data and Research February 26, 2018

Sponsors Making Great Strides on Their Retirement Plans

With concerns about retirement readiness growing, sponsors are turning to automatic features, increasing their contributions, streamlining their investment menus and improving fee transparency.

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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.

Most notably, they are adding automatic features, offering Roth 401(k)s, boosting their matches, streamlining investment choices and improving fee transparency.

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“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.

Products February 26, 2018

RBC Offers Guide to Retirement Health Cost Planning

A survey found only 56% of respondents have factored health care into their retirement planning.

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Because most Americans are unprepared for health care costs in retirement, RBC Wealth Management—U.S. has issued a guide to help them, titled, Taking Control of Health Care in Retirement.

From a survey that Ipsos conducted for RBC, the firm learned that 80% of respondents are concerned about funding the cost of health care in retirement. However, only 56% have factored health care into their retirement planning, and of this group, 50% said they think they probably underestimated the true cost of health care in retirement. Respondents said they thought they would need an average of $2,700 a year in out-of-pocket costs for health care in retirement, but RBC says the real cost is $5,700 per person and $11,400 for a married couple.

“Health care is one of the largest expenses we will face in retirement,” says Michael Armstrong, chief executive officer of RBC Wealth Management—U.S. “If not properly accounted for, these costs can derail even the most solid retirement plan.”

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RBC’s report says that the first thing people should do is realize the cost of health care in retirement, which is more than $400,000 for a 65-year-old couple retiring this year. In addition, health care expenses increase with age, according to RBC. For a couple between the ages of 65 and 74, they average $13,000 a year. For those ages 75 to 84, they average $24,000, and for those 85 and older, the cost is $39,000 a year.

RBC recommends that people take advantage of the retirement savings and medical benefits that their employers offer, including accident and critical illness coverage, life insurance, group legal plans, Roth 401(k)s and health savings accounts (HSAs). People also need to consider how long they may live, RBC says. Current life expectancy is 76 for men and 81 for women.

RBC also says that 70% of 65-year-olds will need some form of long-term care and that a private room in a nursing home costs an average of $92,376 a year. RBC says that some possible financing options include purchasing long-term care insurance or an insurance policy with an annuity rider.

RBC notes that there are limits to the scope of traditional Medicare, so people need supplemental health care insurance. The RBC report notes that aerobic exercise and adequate sleep may delay the onset of dementia or improve your ability to manage a decline.

RBC’s report, Taking Control of Health Care in Retirement, can be downloaded here.

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