Participant Savings Show Signs of Improvement

Aon Hewitt has been looking at its client base for slightly over a decade to gauge the performance of the retirement plans it services. The focus is primarily on the large plan market, with an average of almost 25,000 eligible employees per plan. According to 2013 Universe Benchmarks: Measuring Employee Savings and Investing Behavior in Defined Contribution Plans (Highlights), while participants for the most part are not actively involved with their retirement plans, automated features are meeting with substantial success in improving the outlook for a secure retirement. 

Key findings by Aon Hewitt include:

• Participation rates rose to an all-time high of 78%.
• The participation rate is 81.4% for those under automatic enrollment, compared to 63.5% for those who are not.
• The average account balance is now $81,240, versus $57,150 in 2008.
• Nearly 40% allocation to premixed portfolios is up about 13 percentage points in two years.
• Average allocation to company stock has dropped from 41.8% in 2002 to 13.4%.

Key recommendations include:

• Fully implement and expand the scope of automated features, as inertia tends to work in favor of the participant. These features should include automatic enrollment, increased default contribution rates, automatic escalation, automatic rebalancing, stretching of the matching contribution rate, and expanded enrollment to nonparticipants. 
• Include investment advisory features such as target-date funds, online guidance, investment advice, and managed accounts. Offer seminars, personal financial planning, and lifetime income solutions.
• Reduce plan leakage by modifying loan rules to reduce the amounts borrowed and owed, while making it easier to repay the loans after employment is terminated by not limiting repayment to payroll deduction.
• Take advantage of new technologies. Reaching participants via webinars, podcasts, text messages, and social media can be very effective.

A recurring theme of this blog has been that saving for retirement does not happen in a vacuum. There are numerous competing financial challenges in the way, with many people still trying to recover from the impact of the downturn in the economy in 2008 and 2009. The report recognizes this: 

"One of the dominant themes of Aon Hewitt’s 2013 Hot Topics in Retirement report is that plan sponsors are embracing a more holistic perspective on their retirement programs. They are focusing on financial wellness and measuring projected retirement income adequacy, instead of merely concentrating on current participation and savings levels." 

Recognizing that employees do in fact want to save for retirement but are finding it difficult to do so should go a long way toward resolving that challenge.