Cautious Optimism for Retirement Savings

Aon Hewitt has released a report analyzing trends among 141 defined contribution (DC) plans it services, comprised of 3.5 million eligible employees. According to 2013 Universe Benchmarks: Measuring Employee Savings and Investment Behavior in Defined Contribution Plans, participation rates are at an all-time high and savings have improved slightly. Automated features have played an important part in improving savings, and account balances have reached pre-recession levels. 
Items of note from the survey include:

• The participation rate is 78.0%, about two percentage points higher than last year.
• 72.5% of participants save at or above the company match threshold.
• The participation rate for those subject to automatic enrollment is 81.4%; it is only 63.5% for those not subject to auto-enrollment.
• The average account balance is $81,240, compared to $57,150 in 2008.
• Average allocation to company stock is 13.4%, down very significantly from 41.8% in 2002.

While there have been improvements, Aon Hewitt notes that the job is not done. The report recommends that plan sponsors should (1) leverage the full potential of automated features, (2)  offer participants a variety of investment advisory solutions, (3) reduce plan leakage and develop new ways to reach employees, such as by allowing plan loans to be repaid from personal accounts after employment ends, as payroll deduction is no longer possible, and (4) develop new ways to reach employees in light of the new technologies.

While Aon Hewitt's study tends to focus on the large plan market, its findings are very instructive as it is an ongoing challenge to help individuals save for retirement. It would appear that for many the desire to save for retirement is there and the importance of doing so is understood. Competing financial pressures often stand in the way. Narrowing the gap between the desire to save and the ability to do so ideally will help improve the retirement expectations of a large part of the population.