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Aon Hewitt Survey Shows Employers Help Workers to Meet Savings Needs
Published on Jan 27, 2011

According to a report released by Aon Hewitt, the global human resources consulting and outsourcing business of Aon Corporation, companies have little confidence that workers are taking the actions necessary to meet their retirement savings needs.

Aon Hewitt’s survey of 210 mid-to-large U.S. companies representing 6.2 million workers reveals that just 38 percent of employers are confident that workers are taking accountability for their financial future, down from 43 percent in 2010. Further, fewer than a third (30 percent) of companies are confident employees are sufficiently prepared for retirement, showing no improvement from 2010. As a result, companies are increasingly focusing on adding features and making plan design changes to boost savings rates and promote responsible investing.

In an effort to increase participation in savings plans, more companies are automatically enrolling workers into plans. In 2010, 57 percent of plans offered automatic enrollment, compared to just 24 percent in 2006. Of the plans that do not currently have this feature, more than one-third (36 percent) are likely to add it in 2011. Additionally, automatic contribution escalation is now offered by 47 percent of plans (up from 17 percent in 2006) and automatic rebalancing is offered by 49 percent of plans (up from 27 percent in 2006). These features continue to become more prevalent. More than a quarter of employers (26 percent) are likely to add automatic escalation in 2011, and a third are considering adding automatic rebalancing.

“According to another recent Aon Hewitt report, only half of Generation Y workers who are eligible to participate in a defined contribution plan actually do so, leading to a significant gap in retirement savings,” said Pamela Hess, director of retirement research at Aon Hewitt. “Auto-enrollment is a relatively simple and effective way for companies to help workers plan for retirement—especially younger workers who may not feel the immediate pressure to save for retirement.”

Once workers are enrolled in 401(k) plans, their investing habits are often suboptimal. Aon Hewitt research shows that many employees are not investing in a diversified portfolio, are taking inappropriate risk and very few rebalance their portfolio regularly, if at all. Therefore, more companies are offering tools and services to help participants make better decisions. To simplify investment decision making, more than half (56 percent) offer online investment guidance and 36 percent offer online investment advice and managed accounts. In 2010, just 28 percent of employers offered managed accounts. Further, a vast majority (83 percent) offer target-date funds, which often appeal to younger workers. As companies make changes to their defined contribution plans for 2011, many are adding solutions. In fact, nearly half (47 percent) are likely to add an online guidance feature, over a third of companies (36 percent) are likely to offer online advice and 30 percent are considering offering managed accounts.

“Amid the recent market volatility there has been a dramatic difference in outcomes among people who sought out investment assistance versus those who have not,” Hess explained. “Employers are seeing the disparity and realize they need to step-up their efforts to ensure workers are saving adequately for retirement and have an investment strategy. At the same time, companies acknowledge the diverse needs of the workforce and understand that they need to offer a variety of investment advisory tools to meet the various needs and savings habits of their employees.”

Companies are also increasingly focusing on services and products to help workers manage their nest-egg throughout retirement. Nearly two-thirds of employers (61 percent) provide online modeling tools to help employees determine how much they can spend each year of retirement based on their current savings levels. Additionally, more than one quarter (27 percent) already provide some form of retirement income solution. Nearly one in five plans (19 percent) facilitate annuities either outside, or within a plan and 13 percent plan to add one of these in-plan solutions this year, including managed payout funds, managed accounts with drawdown feature and annuities.

“While employers continue to remain focused on helping workers save sufficiently to meet their retirement needs, they also understand that there is a need to assist workers in spending down their savings during retirement,” says Hess. “We expect an increasing number of companies to assess the marketplace and begin adopting new services and products, such as managed payout funds, managed accounts with drawdown feature and in-plan annuities.”

Other key findings of the survey include:
Most companies (85 percent) plan to review their defined contribution fund operations in 2011, including fund expenses and revenue sharing. Further, nearly half (48 percent) indicate they will review the total plan cost more frequently and/or thoroughly during the year. Additionally, 69 percent of companies indicate they will increase the amount of employee communication surrounding investments and plan fees.
More than a third of employers (34 percent) offer Roth 401(k), up from 29 percent in 2010. Of those not currently offering this option, 38 percent indicate they will add the capability in 2011.
Nearly a quarter (23 percent) of employers suspended or reduced company matching contributions in the past two years. Of those, more than half (55 percent) have already reinstated it in some form and 18 percent plan to reinstate or increase it in 2011. Another 11 percent plan to do so in 2012 or later.
A vast majority of pension plan sponsors (75 percent) plan to make no changes to plan design in 2011. However, more employers are likely to close or freeze their defined benefit plans in the coming year. Among the plans that have ongoing accruals for some or all employees, 16 percent say they’re very likely to freeze accruals during 2011, compared to just 9 percent in 2010. In addition, among plans that are open to new hires, 13 percent are very likely to close participation to new employees, up 4 percentage points from 2010.
Retiree medical benefits will continue to decline. Seven-in-ten employers provide some type of post-retirement medical coverage to their current or future retirees. Nearly two thirds (65 percent) currently offer prescription drug coverage to post-65 retirees and file for the Medicare Part D Retiree Drug Subsidy (RDS). However, only 53 percent of companies plan to keep the same strategy in 2013 when the health care reform law eliminates the tax-free nature of the Medicare Part D subsidy.**

Vendor name: Aon Hewitt
Product type: Consultancy | HR | Insurance | Pension / Retirement

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