By Jeremy Olshan
Though employers have stepped up efforts to get more workers to participate in retirement plans, less attention is given to ensuring that, once in, employees actually save enough, a new study finds.
Just 4% of companies monitor whether employees will have enough saved in their 401(k)s by retirement to replace the recommended 80% to 85% of their incomes, according to Principal Financial’s Retirement Readiness Survey. “Employers have generally measured success by how many employees are participating in the plan,” says Gregory Burrows, Principal’s vice president for retirement services. “The idea of measuring success using retirement income replacement ratios — are participants on track to save enough to replacement 85% of pre-retirement income — is a newer idea.”
Three-quarters of employers surveyed say their retirement plans are successful, and to 82%, success is defined by the number of employees participating, according to Principal, which administers 401(k)s. Thanks to auto-enrollment and improved education, participation rates continue to increase, Burrows says, and more and more companies have expressed a willingness to strongly encourage their employees to contribute. But since auto-enrollment typically defaults workers to between a 3% and 6% contribution, even with generous company matches, most fall short of the estimated 12% often recommended for combined savings.
Roger Wohlner, a financial adviser who does investment consulting for 401(k) plan sponsors, says employers may feel it’s not their place to police whether workers are saving enough. “I think many sponsors are diligent about meeting their responsibilities at the plan (offering solid funds, monitoring the funds and the like) but many feel that what the participants do or don’t do is up to them,” he says. “This issue is certainly one we will try to tackle.”