Many of the recent trends in 401(k) benefits – including automatic enrollment and target date funds – are aimed at helping employees better prepare for retirement. Yet a recent survey finds that the initiatives are having little impact on increasing the financial security of workers.
More than three-quarters of large and midsize U.S. companies say retirement readiness has become a major issue for their employees, according to a survey released today by Towers Watson. Of those surveyed, 82 percent say retirement security will become a more important issue for employees in the next three years, while more than half are concerned about older workers delaying retirement.
Related: How the 401(k) Became a $4 Trillion Key to American Retirement
“Unfortunately, most employers have not yet moved the needle in preparing their workers for a financially secure retirement,” Robyn Credico, a Towers Watson executive, said in a statement. “Getting employees to understand their savings needs and feel comfortable about retirement remains a significant challenge. New plan features alone are not the answer.”
Just 12 percent of employers said their workers know how much they need for a secure retirement, and only one in five believe their employees feel comfortable making investment decisions.
Even workers whose companies offer benefits that will help them better prepare for retirement are not fully taking advantage of them. For example, more than half of companies offer an option to make Roth 401(k) contributions (which allow workers to pay taxes upfront on contributions and then make tax-free withdrawals in retirement). But less than 11 percent of employees take advantage of these features. Roth 401(k)s are often a good fit for young investors, since their investments will have decades to grow tax free and the taxes paid now will also likely be less than those paid in retirement.
Why This Matters: Workers who are not financially prepared for retirement are more likely to delay exiting the workforce, crowding the field for younger workers who are trying to move up the corporate ladder. They’re also more likely to run out of money and turn to government services in retirement.
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